Weekly Musings – FPI flows for week ended November 24, 2023

26 Nov 2023 , 09:07 AM

FPIs net sell $127 million in equities in week to November 24, 2023

The previous week had seen positive FPI inflows into equities, on the back of a boost to IPO flows, even as secondary markets saw net selling. The net selling in secondary markets by FPIs continued this week and they were net buyers in IPOs. However, the net impact was back to being in the negative. For the week ended November 24, 2023, the FPIs were net sellers in equities to the tune of $127 million or Rs1,055 crore. However, what also stands out in the week is that the FPIs remained net sellers for four out of the five days in the week, with Friday being the only day when FPIs were net buyers. In the first 18 trading sessions of November 2023, the FPIs have been net buyers to the tune of Rs288 crore, largely on the strength of the net buying seen in the previous week. In dollar terms, FPIs saw marginal net buying of $45 million in the first 18d days of November 2023.

However, the story of November 2023 has been less about equity and more about the debt flows. For the month till date, FPI flows into debt have been to the tune of Rs13,295 crore or $1.60 billion. What has triggered these flows into Indian debt. Actually, there are two factors. Firstly, the FPI flows have benefited largely from the oil export money that has been kept in vostro accounts. These largely pertain to Russian exports where the funds have remained in the India vostro accounts since the denomination of billing is not yet certain. Russia cannot accept money in dollars and India is unwilling to pay in Yuan. Payments in roubles and rupees has its limitations. The second reason for the surge in FPI flows into debt is the perception that interest rates may have topped out, notwithstanding what the Fed may continue to indicate. That provides an obvious advantage to FPIs looking to enter Indian debt, as lower rates tend to favour long-dated and long duration bonds.

FPIs back to being net sellers in week to November 24, 2023

For the week to November 24, 2023, the FPIs were net sellers in equities to the tune of $127 million, although the buying in debt made up for it somewhat. One reason could be the slew of IPOs this week and much of the IPO flows being recorded in the coming week. However, the trend in the secondary markets has remained weak as FPIs continued to restructure their holdings in India by rotating their exposures to the more visible stories. Here is a quick look at the factors that triggered FPI action in the latest week to November 24, 2023.

1. US Fed minutes was the big story of the week. The Fed had maintained status quo in their last policy announcement made on November 01, 2023, but the tone was the key. It emerged that rate cuts were never even discussed in the Fed meeting, leave along being considered any time in the near future. It clearly showed that rate cuts would be back-ended and for now, the focus may either be on a marginal rate hike or on holding rates higher for longer. That led to some disappointment as the markets were hoping for a more direct hint from the Fed that rates had topped out. That was not to be.

    

2. The uncertainty over the OPEC meeting continued for most of the week, with the OPEC meeting finally being set on Sunday, November 26, 2023. The meeting was delayed during the week after African members of the OPEC like Angola, Congo and Nigeria refused to accept the supply cuts proposed by Saudi Arabia and Russia. While Russia is not an OPEC member; it is a part of OPEC-Plus, and plays a key role in channelling discussions on supply. It is not clear what has been the agreement, but the markets would be keen to see if the supply cuts of 1 million barrels per day (bpd) will be extended through 2024 also. For the week, apart from the uncertainty of OPEC meeting, the sharp spike in US oil inventories also resulted in a fall in oil prices. For India, that is positive news as it reduces the pressure on the trade deficit.

    

3. The big news for the week was on the IPOs front and that is where a lot of FPI money also got channelized. The week saw 5 big mainboard IPOs opening and closing their subscription. IREDA, Tata Technologies, Flair Writing, Fedbank Financial Services and Gandhar Oil had hit the IPO market during the week with combined fund raising plans of nearly Rs7,500 crore. However, the response was overwhelming at nearly Rs3,50,000 crore with Tata Technologies alone getting bids worth Rs1,50,000 crore. It clearly shows a lot of appetite for known brands where the pricing leaves something for the investors on the table. This is likely to be a key driving force in the coming weeks.

    

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 increased from 4.426% to 4.472%, putting some pressure on the other currencies, including the rupee. The small spike in the US bond yields was an aftermath of the relatively hawkish tone of the Fed in its minutes. The Fed meeting had just avoided any discussion on rate cuts and the consensus now is that the Fed may raise rates by another 25 bps, but rate cuts would be only considered by the second quarter of 2024. That led to higher bond yields. However, the dollar index (DXY) remained in a narrow range. After opening at 103.44, the dollar index closed the week at 103.42; a very marginal move for the week. In fact, the index had surged to 103.92 on Thursday, but fell back on Friday after US oil inventories showed a sharp surge. 

    

5. Finally, in a big boost for the equity market sentiments, CDSL reported that it had crossed the 10 crore mark in terms of number of demat accounts. In the last 16 months, CDSL alone has seen its demat account numbers nearly double from 5.3 crore to 10 crore. That is a phenomenal growth and a tome on financialization of savings. Above all, it is a signal that retail investors are taking to equities in a big way; largely led by the rise of the millennial investor. That is normally good news for FPIs as they prefer a market where the retail participation is robust as it keeps the markets liquid and bid-ask spreads under check.

After FPIs turned net buyers of $869 million in the previous week, the latest week to November 24, 2023 again saw FPIs on the sell side for a much smaller $127 million. However, the driver in recent weeks has been IPO flows and with a surge in the number of big-ticket IPOs in the market, that is only going to increase. Secondary market selling may still be there, but FPIs are seeing a lot more action happening in the IPO market.

Macro FPI flow picture up to November 24, 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 #	(7,454.23)	7,832.42	378.19	13,294.78	13,672.97
Total for 2023	62,301.22	34,048.42	96,349.64	45,300.76	1,41,650.40
# – October Data is up to November 24, 2023

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

What is the story of the last 2 years. In the last 3 months i.e., September, October, and November 2023, the FPIs have been net sellers in secondary market equities. FPIs sold Rs50,330 crore in secondary market equities, which is substantial. This was partially recouped by FPI buying in the primary IPO markets to the tune of Rs11,2393 crore, while debt flows in this 3 month period has seen net inflows to the tune of Rs20,924 crore. Clearly, the IPO market and the debt market have offset nearly 60% of the secondary market outflows of FPIs, but the pressure from FPI selling is still there. If you look at a longer range picture, then the net inflows in 2023 till date, to the tune of Rs1.42 trillion has been able to offset the net outflows in 2022 to the tune of Rs1.33 trillion.

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 24, 2023.

Date	FPI Flow (Rs Crore)	Cumulative flows	FPI Flow($ billion)	Cumulative flow
30-Oct-23	-2,493.88	-2,493.88	-299.56	-299.56
31-Oct-23	-1,697.33	-4,191.21	-203.84	-503.40
01-Nov-23	-433.05	-4,624.26	-52.01	-555.41
02-Nov-23	-1,790.88	-6,415.14	-215.03	-770.44
03-Nov-23	-1,188.16	-7,603.30	-142.70	-913.14
06-Nov-23	-85.47	-7,688.77	-10.26	-923.40
07-Nov-23	359.87	-7,328.90	43.25	-880.15
08-Nov-23	-312.49	-7,641.39	-37.53	-917.68
09-Nov-23	-893.02	-8,534.41	-107.25	-1,024.93
10-Nov-23	-1,462.36	-9,996.77	-175.59	-1,200.52
13-Nov-23	5,238.08	-4,758.69	639.22	-561.30
14-Nov-23	0.00	-4,758.69	0.00	-561.30
15-Nov-23	-938.04	-5,696.73	-112.57	-673.87
16-Nov-23	1,523.33	-4,173.40	183.25	-490.62
17-Nov-23	1,325.45	-2,847.95	159.23	-331.39
20-Nov-23	-372.74	-3,220.69	-44.77	-376.16
21-Nov-23	-598.73	-3,819.42	-71.85	-448.01
22-Nov-23	-152.50	-3,971.92	-18.29	-466.30
23-Nov-23	-1,364.76	-5,336.68	-163.76	-630.06
24-Nov-23	1,433.66	-3,903.02	171.99	-458.07

Data Source: NSDL

The FPI selling in the week to November 24, 2023 was resulted in net selling once again, after a brief interlude of net buying in equities by FPIs in the previous week.

• In the previous 5 rolling weeks, FPI witnessed inflows of $869 million, outflows of $(697) million, $(913) million, $(987) million, and $(284) million. The latest week saw net FPI outflows of $127 million, reversing the trend of the previous week that had seen net FPI buying after a gap of 11 weeks.

   

• 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 Rs3,903 crore or $458 million. This is a substantial improvement from the situation we had in the last few months.

What will drive FPI flows in the coming weeks?

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 some of the key data to coming out from  the US like the PCE inflation and the US GDP second estimate for the September quarter. Indian core sector and fiscal deficit will also be under close observation.

   

• The key factor to watch this week will be the outcome of the OPEC meeting as it will have larger implication for crude oil prices, rupee value and for the level of inflation globally.

The coming week would be about less about data announcements and more about oil prices in the aftermath of the OPEC meeting. Of course, US data flows will also be material.