Weekly Musings – FPI flows for week ended November 03, 2023

6 Nov 2023 , 09:29 AM

FPIs sell $2.95 billion in equities in October 2023

Recent weeks have not been too positive for Indian equities in terms of FPI flows. After FPIs net sold equities worth $1.49 billion in September, they doubled the selling to $2.95 billion in October 2023. November is just 3 days into the works and the selling is already visible. In the 4 weeks prior to the latest week, we saw FPI equity selling of $987 million, $284 million, $215, and $962 million respectively. In the latest week ending November 03, 2023, FPIs were net sellers in equities to the tune of $913 million. That means; in the last 5 weeks alone, 3 weeks saw FPI selling of more than $900 million, showing heavy pressure from the foreign portfolio investors, amidst rising bond yields and geopolitical risk.

If you look at the last 4 weeks of FPI flows on a daily basis, what strikes you is that the FPIs have been net sellers on most of the days. For instance, out of the 19 trading sessions in the last 4 weeks, FPIs were net sellers in equities on 13 days and net buyers only on 6 days. Most of the days, when the FPIs sold, were days of heavy selling. The overall impact on the markets may have been limited, but that is more due to the positive flows coming from domestic players like LIC, domestic mutual funds and domestic insurers. However, it remains to be seen, if things change post the recent policy announcement.

Can the Fed policy statement change FPI sentiments?

During the previous week, the Federal Open Markets Committee (FOMC) met for two days and the Fed statement was issued late on November 01, 2023. The outcome was largely along expected lines. The Fed kept the status quo on rates holding them in the range of 5.25% to 5.50%. However, the Fed indicated that it would favour a longer pause and almost ruled out any rate cut considerations for the time being. It is tough to say whether the undertone of the policy was hawkish, neutral, or dovish; but the interpretations were grossly different across different stakeholders in the financial markets.

The Fed did admit that it was concerned about growth and the impact of sharply higher Fed rates. For now, the GDP growth for the third quarter has come in at 4.9% and PCE inflation at 3.4%. While GDP is still positive and labour markets are still undersupplied, the challenge is on the inflation front. It is still 140 basis points away from the avowed Fed target of 2% and the journey looks increasingly tough. Fed has underlined that it would not hesitate to hike rates further if inflation did not come down quickly. Secondly, the analysts were overall of the view that there was still room for more rate hikes, although the Fed would try to use the “higher for longer” approach for as long as it was practically feasible. But, the third dichotomous view comes from the CME Fedwatch. The CME Fedwatch is an aggregation of how the futures market interpret the tone of the Fed. The CME Fedwatch is aggressively betting that the Fed may be done and dusted with rate hikes and rate cuts may start in early 2024. The CME Fedwatch is pegging rate cuts of as much as 150-160 bps from current levels by the end of 2024. The truth, obviously, lies between the two extreme views.

What triggered FPI equity selling in the week to November 03, 2023

The FPI selling of $913 million in the latest week to November 03, 2023 marks the third time in the last 5 weeks when FPIs sold more than $900 million in Indian equities. Here is a quick look at the key factors that triggered FPI action in the latest week to November 03, 2023.

• In the latest week to November 03, 2023, several companies announced their September quarter results that were below expectations. Among the big names, Tata Steel reported a deep loss on a one-time charge for the global restructuring. In the Adani group, Adani Wilmar and Adani Enterprises reported a sharp dip in profits in the latest quarter. Other index names like Vedanta and UPL Ltd have also dipped into net loss in the latest quarter on the back of pressure of costs and weak global sales. Even mid-cap players like DCM Shriram, Deepak Fertilizers, Pfizer India, and Jubilant Foods saw a sharp fall in profits. Another big name to report weak numbers in the quarter was Bharti Airtel, where one-off charges were the reason. Overall, the numbers have had some very key disappointments at a fundamental level.

   

• The big news of the week was the announcement of the Fed policy statement, which held the rates in the range of 5.25% to 5.50%. This was on expected lines. That also had an impact on the global and the Indian markets as it triggered a late bounce in the markets during the week. However, the FPI sentiments continued to be on the selling side as they still interpreted the data as being relatively hawkish. The Fed statement clearly implied that it would not hesitate to hike rates more aggressively, should the situation demand. For now, the impact of the Fed statement on flows has been limited.

   

• The week also saw the domestic data flows in the form of the core sector growth and the fiscal deficit update. While both the numbers were relatively positive in absolute terms, the FPIs still felt that the numbers were not convincing enough for them to change their stance. For instance, the core sector growth came in at 8.13% for September, which marks the fourth month in a row that core sector growth has been above 8%. However, the growth was sharply lower than 12.55% recorded in August. Also, the high frequency MOM core sector growth showed negative output performance across all the 8 core sectors. The fiscal deficit at the end of the first half stood at 39.3% of full year target. That is par for the course. However, FPIs are still cautious that the election related considerations could result in back-ending of fiscal spending. Also, the revenues in the second half are likely to be hit by a general global slowdown in demand.

   

• Geopolitical risk continued at the forefront this week, although the attention of global investors is slowly moving to other pressing issues. However, the situation in the Middle East and West Asia remains a big ticking time bomb for India considering the potential it has to result in a spurt in crude prices. That could lead to imported inflation into India, since India still relies on oil imports to meet 80-85% of its daily oil requirements. There are fears that, unofficially, Israel may be waging a full-fledged war in Gaza and surrounding regions. It remains to be seen how Iran and Saudi Arabia react, should the situation get from bad to worse.

   

• Finally, there is the surge in IPO activity that is likely to continue to suck out secondary market liquidity flows. Last week, Cello World and Mamaearth raised Rs3,600 crore between them and both were substantially oversubscribed by the QIBs. Clearly, FPIs are looking at opportunities in the IPO segment. In the coming week, there are big mainboard IPOs like Protean eGov Technologies, ASK Automotive set to open while ESAF Small Finance Bank IPO will close next week. Also, the Tata Technologies IPO details are expected. FPIs are likely to hold on to cash to leverage these opportunities.

The signals of a slowdown in FPI flows were visible from August and September reinforced the trend. October FPI outflows doubled over September and November 2023 has begun on a negative note in terms of FPI flows. While secondary market FPI flows are under pressure; the good news is that the IPO flows and debt flows are the big positive takeaways.

Macro FPI flow picture up to November 03, 2023

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

Calendar  Month	FPI Flows Secondary	FPI Flows Primary	FPI Flows Equity	FPI Flows Debt/Hybrid	Overall FPI Flows
Calendar 2022	(146,048.38)	24,608.94	(121,439.44)	(11,375.78)	(132,815.22)
Jan-2023	(29,043.32)	191.30	(28,852.02)	2,308.27	(26,543.75)
Feb-2023	(5,583.16)	288.85	(5,294.31)	1,155.19	(4,139.12)
Mar-2023	7,109.65	825.98	7,935.63	-2,036.42	5,899.21
Apr-2023	9,792.47	1,838.35	11,630.82	1,913.97	13,544.79
May-2023	38,093.11	5,745.00	43,838.11	4,491.44	48,329.55
Jun-2023	45,736.71	1,411.63	47,148.34	9,109.36	56,257.70
Jul-2023	37,292.82	9,324.94	46,617.76	1,359.32	47,977.08
Aug-2023	9,232.57	3,029.71	12,262.28	6,075.54	18,337.82
Sep-2023	(14,576.40)	(191.10)	(14,767.50)	957.11	(13,810.39)
Oct-2023	(28,299.00)	3,751.34	(24,547.66)	6,672.20	(17,875.46)
Nov-2023 #	(3,603.68)	191.59	(3,412.09)	3,216.99	(195.10)
Total for 2023	66,151.77	26,407.59	92,559.36	35,222.97	1,27,782.33
# – October Data is up to 03rd November 2023

Data Source: NSDL (all figures are Rupees in crore). Negative figures in brackets

For the recently concluded month of October 2023, the positive cues came from FPI debt inflows, followed by inflows into IPOs. Secondary markets continue to see heavy selling of Rs28,300 crore in October 2023; double of the September number. In the first 3 days of November, the debt inflows have almost entirely offset the equity outflows. It remains to be seen if this will be the trend for the coming weeks. However, the bigger story is visible in the cumulative picture of calendar 2023 so far. For the year till date, secondary market equity inflows were Rs66,152 crore while inflows from IPOs and debt added up to Rs61,631 crore. In this shifting undertone of FPI flows, perhaps, lies the bigger story of asset allocation.

Daily FPI equity flows for last 4 rolling weeks

Each week we look at the last 4 rolling weeks data on FPI flows as it shows us a time series moving average of FPI flows. Check the table below for 4 weeks to November 03, 2023.

Date	FPI Flow (Rs Crore)	Cumulative flows	FPI Flow($ million)	Cumulative flow
09-Oct-23	270.60	270.60	32.51	32.51
10-Oct-23	772.83	1,043.43	92.83	125.34
11-Oct-23	-904.21	139.22	-108.60	16.74
12-Oct-23	-178.27	-39.05	-21.41	-4.67
13-Oct-23	-1,747.01	-1,786.06	-210.02	-214.69
16-Oct-23	381.53	-1,404.53	45.82	-168.87
17-Oct-23	-392.85	-1,797.38	-47.18	-216.05
18-Oct-23	590.58	-1,206.80	70.94	-145.11
19-Oct-23	-1,989.61	-3,196.41	-238.97	-384.08
20-Oct-23	-951.93	-4,148.34	-114.31	-498.39
23-Oct-23	1,801.60	-2,346.74	216.54	-281.85
24-Oct-23	0.00	-2,346.74	0.00	-281.85
25-Oct-23	409.88	-1,936.86	49.28	-232.57
26-Oct-23	-4,025.21	-5,962.07	-484.08	-716.65
27-Oct-23	-6,396.40	-12,358.47	-768.39	-1,485.04
30-Oct-23	-2,493.88	-14,852.35	-299.56	-1,784.60
31-Oct-23	-1,697.33	-16,549.68	-203.84	-1,988.44
01-Nov-23	-433.05	-16,982.73	-52.01	-2,040.45
02-Nov-23	-1,790.88	-18,773.61	-215.03	-2,255.48
03-Nov-23	-1,188.16	-19,961.77	-142.70	-2,398.18

Data Source: NSDL

The FPI selling in the week to November 03, 2023 was the third occasion in the last five weeks, when FPI weekly selling was in excess of $900 million. 

• In the previous 5 rolling weeks, FPI witnessed outflows of $(987) million, $(284) million, $(215) million, $(962) million, and $(554) million. The latest week saw net FPI outflows of $(913) million; making it the ninth consecutive week of FPI outflows in a row.

   

• If you look at the last 4 rolling weeks on a cumulative basis, total net FPI outflows from Indian equities were to the tune of Rs19,962 crore or $2.40 billion. This is the eighth time in the last 5 months that the rolling 4-week FPI flows have been negative.

What will drive FPI flows in the coming week?

There will be 2 key drivers of FPI flows in the next week.

• The last round of big quarterly results will be out in this week, with most of the Nifty names having announced numbers. FPIs would hope that there not too many negative surprises in terms of sales, profits, and margins in the coming week.

   

• Even as the role of geopolitical risk subsides, the action shifts to the sharp fall in the US bond yields and the fall in the dollar index (DXY) in the aftermath of the Fed statement. That will be the major driving force for FPI flows in the coming week.

The sharp retreat of bond yields in the US and the dollar index is a positive for FPI flows into EMs in general and India in particular. How much this would really translate into positive flows, remains to be seen.