Weekly Musings – FPI flows for week ended November 17, 2023

20 Nov 2023 , 06:47 AM

FPIs buy $869 million in equities in week to November 17, 2023

The latest week has been a kind of revelation in terms of FPI activity, as they ended up buying equities to the tune of $869 million or Rs7,149 crore. FPIs have been net buyers in the latest week to November 17, 2023 after being net sellers for several weeks in a row. For the month of November so far, FPIs have been net buyers in equities to the tune of R$172 million or Rs1,433 crore in the 13 sessions of November. However, one needs to dig a little deeper into these numbers. 

The Rs1,433 crore of equity inflows in November 2023, so far, is the net figure. If you break it up, you will find that secondary market equities saw net outflows of Rs6,096 crore, but that was more than offset by Rs7,529 crore of inflows from IPOs. If you look at the overall picture of FPI flows in November 2023 so far, FPIs were net buyers of nearly $2 billion, but that is largely on the back of heavy buying by FPIs into Indian debt. Clearly, the trend is gradually towards more of debt flows from FPIs. 

Weekly FPI flows turn positive after a long time

Recent weeks have not been too positive for Indian equities in terms of FPI flows. Let us talk about the monthly picture first. FPIs net sold equities worth $1.49 billion in September, and doubled the selling to $2.95 billion in October 2023. November is 13 days in the works and the FPIs have been net buyers to the tune of $172 million. In the 5 weeks prior to the latest week, we saw FPI equity selling of $697 million, $913 million, $987 million, $284 million, and $215. However, the latest week ending November 17, 2023, has seen FPI buying of $869 million. This is the first week in nearly 3 weeks that FPIs were net buyers in equities.

However, post the Fed policy statement and the tapering of US bond yields and dollar index, the situation appears to be relatively under control. If you look at the latest week, there has been a sharp fall in the US bond yields and also a sharp fall in the US dollar index. This was after the US consumer inflation for October 2023 came in 50 bps lower at 3.2%. The CME Fedwatch is already pegging no more rate hikes by the Fed, but that would be akin to jumping the gun, at a time when Jerome Powell and his team at the FOMC have not given up their hawkish stance still. One outcome has been that the FPIs have turned net buyers in the latest week. For instance, in the latest week, the FPI were net buyers in 3 out of the 4 trading sessions, clearly showing which way the FPI winds are blowing.

Lower US consumer inflation to hold the key

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%. While there was still uncertainty over whether it is the end of the rate hike cycle, there appears to be conviction in the market to that effect post the October US inflation data. For October 2023, the US inflation came in 50 bps lower at 3.2%, showing that the Fed may actually still have the leeway to keep rates on hold.

However, the CME Fedwatch has gone ahead and pegged the end of rate hikes by the Fed, although it does look far-fetched at this point of time. That is because, even at the current level, the inflation in the US is still 120 bps away from the eventual inflation target of 2%. Hence, it may still be premature to call the end of rate hikes, even as the current FPI flows may be justified. For now, the lower inflation has surely had a positive impact on FPI flows into India, and that is the good news.

Why FPIs turned net buyers in week to November 17, 2023

The FPI bought equities worth $869 million in the week to November 17, 2023. This was a sharp turnaround from the persistent selling that we have seen by FPIs in the last 10-11 weeks since the FPIs shifted gears from being net buyers to net sellers in late August 2023. However, we have to wait and see if this shift to FPI buying in the latest week was a flash in the pan or a sustainable trend. For now, it is too early, because FPIs continue to be net sellers in the secondary markets while most of the equity infusion in the week pertains to the plethora of big IPOs in the week and the anchor monies coming in from FPIs. Here is a quick look at the factors that triggered FPI action in the latest week to November 17, 2023.

1. India consumer inflation for October 2023 came in lower at 4.87%, compared to 5.02% reported in September. While the inflation was lower in October, it was higher than the consensus expectation of 4.8% as per the Reuters estimate. While core inflation fell sharply in October (which is a good sign), the food inflation was actually flat in October based on the revised food inflation numbers of September 2023. WPI inflation for October actually deepened in the negative from -0.26% to -0.52% in October 2023. 

    

2. While India inflation was a key issue, what really impacted the FPI flows in the month was the US consumer inflation coming in sharply lower at 3.2%. The US inflation fell across food inflation, fuel inflation and core inflation. It was the sharp fall in the US inflation that actually led to a turnaround in FPI flows into India after the markets started factoring in the end of rate hikes in the US.

    

3. Even as the IIP data and the inflation has been broadly positive for India, there were negative cues coming from the trade data for October 2023. The trade deficit for October 2023 spiralled to an all-time high of $31.46 billion even as the overall deficit (after adjusting for services surplus) stood at around $17.3 billion. That is not great news for the current account deficit and there are concerns that the CAD could now spike for FY24 from 1.5% to 2.0% as a share of GDP. That was one of the reasons, why the rupee remained weak despite the dollar index weakening and the US bond yields also falling.

    

4. Let us turn to the two critical macros of US bond yields and US dollar index. During the week, the US 10 year bond yields fell from 4.64% to 4.44%, reducing the pressure on other currencies, including the rupee. That impact was also seen in the dollar index which also tapered from 105.63 to 103.82 during the week. These two factors were a direct outcome of the sharply lower US inflation for the month of October, which led the CME Fedwatch to believe that the rate hikes were down and dusted for now. That may, or may not be true, but that is the feeling on the street right now.

    

5. Finally, there is the surge in IPO activity that is likely to continue to suck out secondary market liquidity flows. Last week, we saw the listing of IPOs of ESAF Small Finance Bank, ASK Automotive and Protean eGov Technologies. In fact, Protean rallied 43% in a week after listing. That is likely to see sharply spike in interest in IPOs from FPIs in the coming week. This week, 5 IPOs of Flair Writing, Tata Technologies, IREDA, Fedbank Financial Services and Gandhar Oil; are likely to collect Rs7,400 crore between them and that is likely to see a lot of FPI interest too. While secondary market flows from FPIs may continue to remain under pressure, expect positive cues from the FPI flows into IPOs.

FPIs saw net buying of $869 million in the latest week to November 17, 2023. It is not yet clear if this is a sustainable trend, but one thing is certain that IPOs will continue to drive FPI flows into India. That is something to savour for now.

Macro FPI flow picture up to November 17, 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 #	(6,096.21)	7,529.47	1,433.26	13,941.54	15,374.80
Total for 2023	63,659.24	33,745.47	97,404.71	45,947.52	1,43,352.23
# – October Data is up to 17th November 2023

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

The first 13 trading sessions of November have presented a rather curious picture. Firstly, in November 2023, the IPO inflows have offset the secondary equity market outflows, resulting in net FPI buying of Rs1,433 crore in equities in November. November saw massive FPI buying of Rs13,942 crore in debt and that means, the overall inflows from FPIs in November till date stands at Rs15,375 crore. For calendar year 2023 till date, secondary market equity inflows were Rs63,659 crore while inflows from IPOs and debt grabbed the limelight at Rs79,693 crore. FPIs may be selling stocks in secondary markets, but are buying into IPOs and debt quite aggressively; which is now bigger than the buying in secondary markets in the year 2023 so far.

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 17, 2023.

Date	FPI Flow (Rs Crore)	Cumulative flows	FPI Flow($ million)	Cumulative flow
23-Oct-23	1,801.60	1,801.60	216.54	216.54
24-Oct-23	0.00	1,801.60	0.00	216.54
25-Oct-23	409.88	2,211.48	49.28	265.82
26-Oct-23	-4,025.21	-1,813.73	-484.08	-218.26
27-Oct-23	-6,396.40	-8,210.13	-768.39	-986.65
30-Oct-23	-2,493.88	-10,704.01	-299.56	-1,286.21
31-Oct-23	-1,697.33	-12,401.34	-203.84	-1,490.05
01-Nov-23	-433.05	-12,834.39	-52.01	-1,542.06
02-Nov-23	-1,790.88	-14,625.27	-215.03	-1,757.09
03-Nov-23	-1,188.16	-15,813.43	-142.70	-1,899.79
06-Nov-23	-85.47	-15,898.90	-10.26	-1,910.05
07-Nov-23	359.87	-15,539.03	43.25	-1,866.80
08-Nov-23	-312.49	-15,851.52	-37.53	-1,904.33
09-Nov-23	-893.02	-16,744.54	-107.25	-2,011.58
10-Nov-23	-1,462.36	-18,206.90	-175.59	-2,187.17
13-Nov-23	5,238.08	-12,968.82	639.22	-1,547.95
14-Nov-23	0.00	-12,968.82	0.00	-1,547.95
15-Nov-23	-938.04	-13,906.86	-112.57	-1,660.52
16-Nov-23	1,523.33	-12,383.53	183.25	-1,477.27
17-Nov-23	1,325.45	-11,058.08	159.23	-1,318.04

Data Source: NSDL

The FPI selling in the week to November 17, 2023 was lower than the previous week, but cumulative numbers are still bearish.

• In the previous 5 rolling weeks, FPI witnessed outflows of $(697) million, $(913) million, $(987) million, $(284) million, and $(215) million. The latest week saw net FPI inflows of $869 million; the first net FPI inflow into equities in the last 11 weeks of outflows.

   

• 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 Rs11,058 crore or $1.32 billion. This is a substantial improvement from the situation we had in the previous week.

What will drive FPI flows in the coming week?

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

• While there are no major India data flows, the FPIs will be closely watching for the minutes of the FOMC meeting of November to be put out on November 22, 2023. The minutes, with the dot plot, will set the tone for rate expectations this week and have a direct impact on FPI flows into India. 

   

• US bond yields and the dollar index (DXY) fell sharply this week after the US announced sharply lower inflation data. That will keep FPI flows robust.

The coming week would be about less about data announcements and more about the US cues from the FOMC minutes, US bond yield and the dollar index.