Weekly Musings – FPI flows for week ended May 31, 2024

2 Jun 2024 , 09:21 PM

WHAT EXACTLY DID THE EXIT POLLS SAY?

Till last Saturday, there was a lot of uncertainty about how the markets would pan out int eh coming week. After all, the outcome of the elections were to be announced on Tuesday. While the final outcome will be known by the evening on Friday, the broad trends would be clearly visible by around mid-day on June 04, 2024. However, the big game changer on the political front came from the exit polls. Now, exit polls are conducted by interviewing people when they come out from voting. As per the Election Commission of India (ECI) rules, the exit polls cannot be published till the last phase of elections are over. That is the reason, the exit polls were only announced late on Saturday, after polling at all stations were completed. Remember, close to a Billion people have voted and a sample of 5-6 Lakhs may hardly be representative. However, the experience of the past has been that while the numbers may not be accurate, the exit polls catch the trend pretty well.

What exactly did the exit polls say? There were several interesting takeaways from the exit polls. For starters, the exit polls have projected a thumping majority for the NDA. If that turns out to be true, Mr Modi will only be the second prime minister to win the top job 3 times in a row after Pandit Nehru. What is interesting is that it has been done with progressively higher vote share. But that was not the biggest story. This election shows that the impact and influence of the NDA is now extending much beyond the Hindi belt. For instance, it is slated to be the best performer in West Bengal, Odisha, and Andhra Pradesh; all of which have been traditional non-BJP bastions. If these numbers are correct, then the BJP will be extending its influence beyond its traditional North plus West formula. Of course, these are national polls and not state polls, but the expansion of influence is clear. Assuming that these exit polls are correct, will it push FPI flows again into India?

WHY IT COULD BE PARTY TIME FOR FPI FLOWS?

While FPIs have generally been party agnostic, at least on paper, they have always preferred continuation of the reforms process. That is what gives them the comfort to do business in India and allocate money to Indian stocks. The FPIs also look for political stability and it is apparent that an unwieldy coalition may not be in a position to offer political stability at a time when the global equations, itself, are quite challenging. But that is just one part of the story. What the current government has achieved in FY24 is a combination of robust GDP growth and a surprising degree of fiscal prudence. That is only likely to accentuate the confidence of FPIs as they allocation fresh money into India. But first, a little more about the GDP and fiscal deficit story.

For Q4FY24, the GDP growth was 7.8%, against the street expectation of 6.5%. Also, the full year GDP growth for FY24 came in sharply higher at 8.2%. India is not just growing, but it is the fastest growing large economy for the third year in a row. That is what sets the growth story apart. Above all, this growth has been supported by a sharp turnaround in manufacturing, mining, and quarrying. Agricultural output has been tepid, but that is likely to change if the monsoons are normal this year. But the bigger story is on the fiscal deficit front. The government had originally projected fiscal deficit at 5.9% of GDP for FY24, which was reduced to 5.8% in the interim budget. However, the actual figure was 5.6% of GDP. This is a huge bonus and is likely to push the government to drop the fiscal deficit estimate for FY25 to below 5% from the original estimate of 5.1%. The 4.5% target could be even bettered by FY26 itself. Forget about the election outcome; the incredibly positive GDP and fiscal deficit is likely to bring back a deluge of FPI flows into India.

MACRO FPI FLOW PICTURE UP TO MAY 31, 2024

The table captures monthly FPI flows into equity and debt for 2022, 2023, and 2024.

Calendar Month	FPI Flows Secondary	FPI Flows Primary	FPI Flows Equity	FPI Flows Debt/Hybrid	Overall FPI Flows
Calendar 2022 (₹ Crore)	(146,048.38)	24,608.94	(121,439.44)	(11,375.78)	(132,815.22)
Calendar 2023 (₹ Crore)	1,27,759.75	43,347.14	1,71,106.89	65,954.38	2,37,061.27
Jan-2024 (₹ Crore)	(28,863.89)	3,120.34	(25,743.55)	19,150.21	(6,593.34)
Feb-2024 (₹ Crore)	(3,194.72)	4,733.60	1,538.88	30,277.95	31,816.83
Mar-2024 (₹ Crore)	29,152.54	5,945.78	35,098.32	16,987.88	51,996.20
Apr-2024 (₹ Crore)	(23,331.04)	14,659.77	(8,671.27)	(7,588.75)	(16,260.02)
May-2024 (₹ Crore) #	(30,613.87)	5,027.54	(25,586.33)	12,675.47	(12,910.86)
Total for 2024 (₹ Crore)	(56,850.98)	33,487.03	(23,363.95)	71,412.76	48,048.81
For 2024 ($ Million)	(6,795.89)	4,026.38	(2,769.51)	8,603.21	5,833.70
# – Recent Data is up to May 31, 2024

Data Source: NSDL (Negative figures in brackets)

FPIs turned again turned net sellers in the week to May 31, 2024 at $424 Million, after being net buyers in equities to the tune of $744 Million in the previous week. For calendar 2024 overall, FPIs were net buyers to the tune of $5,833.70 Million. For 2024 till date, FPIs net sold equities worth $(2,769.51) Million and were net buyers in debt to the tune of $8,603.21 Million. As of the close of May 31, 2024, the FPIs were still net sellers in secondary market equities worth $(6,795.89) Million, while the buying in IPOs partially compensated for that at $4,026.38 Million.

In the latest week to May 31, 2024, FPIs again turned net sellers to the tune of $424 Million, after being net buyers of $744 Million in the previous week. This come after FPIs had net sold $1.34 Billion in equities in the week to May 17, 2024 and were sellers of $2.18 Billion in the week to May 10, 2024. Till last week, the story was all about political uncertainty and rising VIX. In the coming week, the story will be all about GDP, fiscal deficit and exit polls. Of course, exit polls are an opinion and we need to await actual poll results on June 04, 2024.

FPI SENTIMENTS – THE WEEK THAT WAS

For the latest week to May 31, 2024, FPIs were net sellers to the tune of $424 Million. FPIs were cautious, but still confident. Here is what drove FPI sentiments this week. Remember, many of these were announced late on Friday or on Saturday, but expectations were built around these factors.

• The exit polls almost flattered the markets offering a thumping win for the ruling NDA combination. It is being projected that the BJP itself could get over 350 seats and the NDA combine could cross the magic figure of 400. Of course, strong trends tend to overplay on the upside, so there could be positive surprises too. The markets will be more interested in the exit polls giving a vote for stability and also the ruling NDA making further forays into regions like Odisha, West Bengal, and Andhra Pradesh. However, the caveat is that these are all estimates and it is best we await the actual poll results on June 04, 2024.
• The GDP growth for Q4FY24 came in at 7.8%, against the street expectation of 6.5%. Even the government was cautious and preferred to under-promise and over-deliver. More importantly, the full year GDP growth for FY24 came in sharply higher at 8.2%. This comes on the back of 3 years of solid post-COVID growth, so it is really appreciable. It is also the third year in a row that India will be the fastest growing large economy in the world. The sharply higher GDP has also led to upgrades to FY25 estimates and we should get a clearer picture in the upcoming full budget in July. For FPIs, it is going to be a big boost to the India growth story.
• Fiscal deficit for FY24 came in at 5.6%, a full 20 bps lower than the revised estimates in the interim budget. The original estimate of fiscal deficit was 5.9% for FY24, which was later reduced to 5.8% in the interim budget. However, the actual number came in at 5.6%, which is an amazing achievement. With GDP likely to be robust and tax revenues also robust, the government will gain on the numerator and the denominator. With a higher than expected dividend by the RBI at ₹2.11 Trillion, the government may even drop the FY25 fiscal deficit estimate to below 5% of GDP.
• The core sector data for April 2024 was also announced at 6.2%. That is sharply better than the previous month. However, the previous month core sector growth was upgraded by 80 bps and that bodes well for the core sector growth in future months. With the RBI dividend largesse, we could also see a higher capex allocation in the full budget, which can boost core sector growth further. For April 2024, 7 out of the 8 core announced positive growth with only fertilizers in the negative. The big core sector growth drivers in April were electricity, coal, steel, and natural gas.
• The US announced the all important Q1 GDP second estimate during the week and also the PCE inflation for April 2024. The Q1 GDP was downsized further to 1.3% from 1.6% in the first estimate. That is not a great feeling. However, it also means that the tightness of the Fed has been working and should facilitate rate cuts. The PCE inflation was steady at 2.7%, even as core inflation remained steady, but food inflation fell and energy inflation spiked sharply on the back of the ongoing crisis in the Red Sea.
• Even as India reported good news on the GDP and fiscal deficit front, there was good news on the monsoons too. The onset of rains in Kerala was earlier than expected while the overall estimate of the IMD is of a normal monsoon with rains in the range of 96% to 104% of the long period average (LPA). That should be a boost for agricultural output and also be instrumental in containing food inflation in 2024.

With the Q4 results season done, the action shifts to the actual election results, the monetary policy and also the likely shape and colour of the full Union Budget 2024.

DAILY FPI EQUITY FLOWS FOR LAST 4 ROLLING WEEKS

Here is the last 4 rolling weeks data on FPI flows as it shows us a time series moving average of FPI flows.

Date	FPI Flow (₹ Crore)	Cumulative flows	FPI Flow($ Million)	Cumulative flow
06-May-24	-2,138.05	-2,138.05	-256.42	-256.42
07-May-24	-1,150.98	-3,289.03	-137.89	-394.31
08-May-24	-2,942.98	-6,232.01	-352.45	-746.76
09-May-24	-5,336.80	-11,568.81	-639.03	-1,385.79
10-May-24	-6,669.92	-18,238.73	-798.81	-2,184.60
13-May-24	-1,292.15	-19,530.88	-154.76	-2,339.36
14-May-24	-4,392.53	-23,923.41	-525.90	-2,865.26
15-May-24	-2,513.07	-26,436.48	-300.89	-3,166.15
16-May-24	-2,338.84	-28,775.32	-280.07	-3,446.22
17-May-24	-622.33	-29,397.65	-74.52	-3,520.74
20-May-24	0.00	-29,397.65	0.00	-3,520.74
21-May-24	2,180.71	-27,216.94	261.23	-3,259.51
22-May-24	-1,877.28	-29,094.22	-225.19	-3,484.70
23-May-24	0.00	-29,094.22	0.00	-3,484.70
24-May-24	5,891.71	-23,202.51	707.88	-2,776.82
27-May-24	-937.08	-24,139.59	-112.74	-2,889.56
28-May-24	696.16	-23,443.43	83.79	-2,805.77
29-May-24	2,134.54	-21,308.89	256.66	-2,549.11
30-May-24	-4,311.41	-25,620.30	-517.41	-3,066.52
31-May-24	-1,122.05	-26,742.35	-134.50	-3,201.02

Data Source: NSDL

FPIs turned net sellers after being net buyers in the previous week. Before that, the FPIs were net sellers for 5 weeks in a row. With the GDP data and the fiscal deficit data out, the FPIs will now await the actual election outcome on Tuesday.

• In previous 5 rolling weeks, FPIs had seen net inflows of $744 Million, net outflows of $1,336 Million, $2,184 Million, $146 Million, and $126 Million. The latest week to May 31, 2024 saw net FPI outflows of $424 Million into equities.
• If you look at the last 4 rolling weeks on a cumulative basis, total net FPI outflows from equities were at ₹(26,742) Crore or ($3,201) Million. This number has stayed in the negative zone for several weeks. The week saw net buying in debt.

TRIGGERS FOR FPI FLOWS IN COMING WEEKS?

In the coming week, several factors are likely to be potent triggers for FPI flows. The two big factors will be the election outcome on Tuesday and the monetary policy by the RBI on Friday. The exit polls are already predicting a return of the NDA with a thumping majority, but the FPIs will still prefer the actual numbers. Monetary policy may still be a status quo, but post the full budget, the FPIs are expecting pre-emptive rate cuts.