Weekly Musings – FPI flows for week ended November 10, 2023

13 Nov 2023 , 06:42 AM

FPIs sell $697 million in equities in November 2023

In the first eight trading sessions of November 2023, the foreign portfolio investors (FPIs) have sold equities to the tune of $697 million or Rs5,806 crore. If the first eight days of the month of November are any indication, then FPI selling in equities promises to be above $2 billion in the current month also. However, one needs to dig a little deeper into these numbers. The Rs5,806 crore of equity outflow was just the net figure. Secondary market equities saw net outflows of Rs7,011 crore, but that was partially offset by Rs1,205 crore of inflows from IPOs. However, the surprising aspect is that for the month of November till date, FPIs were net buyers to the tune of Rs1,525 crore overall. That was because of debt market inflows to the tune of Rs7,331 crore in the first 8 sessions of November 2023. That surely looks quite a confusing set of numbers, so let us break it up weekly.

Weekly FPI selling marginally tones down this week

Recent weeks have not been too positive for Indian equities in terms of FPI flows. First, the monthly picture. FPIs net sold equities worth $1.49 billion in September, and doubled the selling to $2.95 billion in October 2023. November is just 8 days into the works and the selling is already visible at $697 million. In the 5 weeks prior to the latest week, we saw FPI equity selling of $913 million, $987 million, $284 million, $215, and $962 million. The latest week ending November 10, 2023, has seen FPI selling of $697 million. That means; in the last 6 weeks alone, 3 weeks saw FPI selling of more than $900 million, showing heavy pressure from the foreign portfolio investors. 

However, post the Fed policy statement and the tapering of US bond yields and the dollar index, the situation appears to be relatively under control. At least, the FPI outflows appear to have partially reduced in this week. 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 14 days and net buyers only on 5 days. 

Fed statement proposes, Jerome Powell disposes

In the recent policy statement issued by the Federal Reserve on November 2023, the US Fed held status quo on rates holding them in the range of 5.25% to 5.50%. However, the Fed has already indicated that it would favour a longer pause and almost ruled out any rate cuts for the time being. However, the Fed statement had admitted that the Fed continued to be ambivalent between doing too much and doing too little. At this juncture, the Fed had tacitly admitted, there was the risk that if the Fed went overboard with more rate hikes, it could hit growth and consumption spending. That was the picture from the Fed statement and it had actually enthused the markets to a large extent.

The big change in the latest week was the speech delivered by Jerome Powell at the IMF conference in Washington on Thursday this week. In the speech, Jerome Powell was quite categorical that the Fed had probably not done enough to bring inflation to the 2% mark rapidly. It clearly showed that Powell personally preferred a more aggressive stance on rate hikes, but had probably relented over growth concerns. However, the confidence of Powell stems from the fact that recent growth numbers have been very flattering with GDP growth scaling up to 4.9% for the third quarter of 2023 as per the first advance estimates. However, Powell openly admitted he was concerned about inflation staying elevated around 150 bps above the Fed target rate of 2%

What triggered FPI equity selling in the week to November 10, 2023

The FPI selling of $697 million in the week to November 10, 2023 was lower than the FPI selling of $913 million reported in the prior week. However, the fact remains that the FPIs were net sellers of more than $900 million in 3 out of the last 6 weeks. The following five factors explain the elevated levels of FPI selling in the current week. Here is a quick look at the five factors that triggered FPI action in the latest week to November 10, 2023.

1. The last week prior to the Diwali holidays almost marked the end of the results season. Broadly, there were positives on the profit front in the second quarter. Despite pressures on the top line and weak pricing power, the companies had managed to tweak their cost structures and optimized operations to improve margins. It was a quarter in which most of the manufacturing industries saw an improvement in margins. However, top line remains the major pressure point. For example, global sales across sectors, including IT, textiles and chemicals came under pressure. The festival consumption has been quite strong, although not as robust as expected. The ambivalent quarterly numbers remain a challenge for the FPIs. 

    

2. The big news of the week at the global level was the speech delivered by Jerome Powell at the IMF conference in the aftermath of the policy presentation last week. However, unlike the tone of the policy being rather subdued, Powell maintained a very hawkish tone. He admitted that the Fed had fallen short in containing inflation quickly and bringing it quickly to the 2% mark. He also felt that, leaving aside the growth concerns, the inflation halting at 3.5% was disappointing after 20 months of hawkish Fed policy. He admitted that Fed would stand prepared for more tightening to push the inflation down to the 2% mark at the earliest. 

    

3. The bid domestic data point this week was IIP growth, which tapered to 5.83% in the current month after crossing 10% in the previous month. Obviously, the base effect had an impact, but the overall news flow was positive in the sense that on a strong base, the current growth of 5.83% IIP is impressive. Also, this IIP growth came largely with robust manufacturing growth, indicating that the positive lag effects of 8%-plus cost sector growth started to show on the IIP numbers. However, the markets would be keen to look at the inflation number in the coming week, both in India and in the US.

    

4. Geopolitical activity may have been subdued, but the war is going on in West Asia and there is no saying when the situation in the Middle East and West Asia could again flare up. Also, the latest week saw the US bond yields and the US dollar index bouncing from lower levels after these parameters had fallen sharply last week in the aftermath of the Fed statement. However, the situation in the Middle East and West Asia remains a ticking time bomb for India considering the potential it has to result in a spurt in crude prices. The only good thing is that the crude prices have been falling sharply in the midst of weak demand concerns, and crude near $80/bbl is a lot more comfortable for India. 

    

5. Finally, there is the surge in IPO activity that is likely to continue to suck out secondary market liquidity flows. This week we saw positive listing of some of the big IPOs like Protean eGov Technologies, and ESAF Small Finance Bank, while the IPO of ASK Automotive is expected to be listed next week. There are no IPOs opening this week, although the FPIs would be keenly awaiting big ticket IPOs like Tata Technologies, FedBank Financial Services and IREDA, which are round the corner. 

October FPI outflows doubled over September 2023. November data indicates that the overall selling could be more than $2 billion for the month; unless, something changes drastically in terms of FPI sentiments.

Macro FPI flow picture up to November 10, 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 #	(7,010.66)	1,205.10	(5,805.56)	7,330.58	1,525.02
Total for 2023	62,744.79	27,421.10	90,165.89	39,336.56	1,29,502.45
# – October Data is up to 10th November 2023

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

The first 8 trading sessions of November have presented a rather curious picture. Debt inflows from offset have wiped out the equity outflows and the net result is positive inflow of Rs1,525 crore from FPIs in November so far. Secondary market equities saw net selling of Rs7,011 crore but IPOs saw net inflows of Rs1,205 crore. The whole deficit was more than wiped out by debt inflows from FPIs of Rs7,331 crore in the first 9 sessions of November. For calendar year 2023 till date, secondary market equity inflows were Rs62,745 crore while inflows from IPOs and debt grabbed the limelight at Rs66,758 crore. FPIs may be selling stocks in secondary markets, but are buying into IPOs and debt quite aggressively.

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 10, 2023.

Date	FPI Flow (Rs Crore)	Cumulative flows	FPI Flow($ million)	Cumulative flow
16-Oct-23	381.53	381.53	45.82	45.82
17-Oct-23	-392.85	-11.32	-47.18	-1.36
18-Oct-23	590.58	579.26	70.94	69.58
19-Oct-23	-1,989.61	-1,410.35	-238.97	-169.39
20-Oct-23	-951.93	-2,362.28	-114.31	-283.70
23-Oct-23	1,801.60	-560.68	216.54	-67.16
24-Oct-23	0.00	-560.68	0.00	-67.16
25-Oct-23	409.88	-150.80	49.28	-17.88
26-Oct-23	-4,025.21	-4,176.01	-484.08	-501.96
27-Oct-23	-6,396.40	-10,572.41	-768.39	-1,270.35
30-Oct-23	-2,493.88	-13,066.29	-299.56	-1,569.91
31-Oct-23	-1,697.33	-14,763.62	-203.84	-1,773.75
01-Nov-23	-433.05	-15,196.67	-52.01	-1,825.76
02-Nov-23	-1,790.88	-16,987.55	-215.03	-2,040.79
03-Nov-23	-1,188.16	-18,175.71	-142.70	-2,183.49
06-Nov-23	-85.47	-18,261.18	-10.26	-2,193.75
07-Nov-23	359.87	-17,901.31	43.25	-2,150.50
08-Nov-23	-312.49	-18,213.80	-37.53	-2,188.03
09-Nov-23	-893.02	-19,106.82	-107.25	-2,295.28
10-Nov-23	-1,462.36	-20,569.18	-175.59	-2,470.87

Data Source: NSDL

The FPI selling in the week to November 10, 2023 was lower than the previous week, but cumulative numbers are still bearish.

• In the previous 5 rolling weeks, FPI witnessed outflows of $(913) million, $(987) million, $(284) million, $(215) million, and $(962) million. The latest week saw net FPI outflows of $(697) million; making it the tenth 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 Rs20,569 crore or $2.47 billion. This is the ninth 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.

• There is India consumer inflation and US consumer inflation to be announced this week and that will set the trend of what central banks will be doing in the months ahead. Both inflations are expected to come down significantly this month.

   

• After a sharp fall in the previous week, both US bond yields and the dollar index (DXY) bounced back this week after Jerome Powell persisted with his strong line on fighting inflation. This will hold the key to FPI flows this week. 

The coming week would be about data flows on the inflation front, but the US bond yields and dollar index may actually set the FPI agenda for India.