Weekly Musings – FPI flows for week ended October 18, 2024

21 Oct 2024 , 01:00 PM

FPI SELLING – NO OKTOBERFEST FOR MARKETS THIS YEAR
It was nothing the like traditional Oktoberfest that is held in Munich each year. The Indian markets were supposed to see selective buying in the month of October 2024, but what happened was exactly the reverse. Amidst the rising geopolitical risks, valuation concerns, pro-China investment stance and relatively tepid second quarter results; the FPIs were sellers for the third week in a row. The month of October 2024 is slightly intimidating in the sense that the FPI selling of $9.25 Billion in the month so far is the highest level of FPI selling seen in any month in history, since FPIs were permitted to invest in India. In fact, the selling in October 2024 (with still 2 weeks of trading to go) is already the worst month ever, in terms of FPI selling. It is worse than tumultuous months in the recent past, like March 2020 and March 2022. So, how bad has been the selling by FPIs in October 2024?

FPI SELLING – YES, IT WAS SELLING ON ALL THE DAYS OF OCTOBER 2024
Currently, we are only talking about the FPI selling in equities. This week, FPIs were sellers in debt too, but we will not get into that. In the month of October so fear, FPIs have been sellers in all the 13 trading days. The FPI selling was $3.22 Billion in the first week of October, $3.76 Billion in the second week of October, and $2.26 Billion in the third week of October. There has not been a single day of FPI buying in equities in the entire month of October 2024. The total selling in equities in October 2024, so far, has been $9.25 Billion. This more than offsets the FPI inflows of the previous month. In October 2024, the domestic institutions like LIC and the mutual funds have been aggressive net buyers in equities, but FPIs are normally swing investors; as they impact prices, liquidity and the USDINR equation.
FPI SELLING – BIG GUNS DISAPPOINT IN Q2FY25
Beyond the realm of macro data flows, the one thing that really perturbed the FPIs in the month of October was a tepid guidance by heavyweights in their respective industries. Let us start with Reliance. The company saw lower profits in Q2FY25 with pressure on the gross refining margins. The cash cow, oil to chemicals (O2C) business, is likely to see tough times. Secondly, Bajaj Auto an automobile and consumption bellwether, not only reported lower profits, but also projected the festival sales this year to fall to 3-5% range, compared to a robust 8% in the previous year. The results of HDFC Bank disappointed at multiple levels, despite profits being above street expectations. HDFC Bank guided for steady NIMs of 3.6%, not something that has enthused markets. Also, the bank has guided for a credit slowdown. Overall, the big guns have disappointed in terms of guidance, and that hit FPI sentiments.

REALITY CHECK FOR FPI FLOWS IN OCTOBER 2024

For all the enthusiastic analysts and policymakers, who were gung-ho about the India story, the FPI selling in October has come as a wake-up call. The numbers are quite intimidating. The pressure of FPI outflows sustained for the third week in a row, with FPIs net selling $9.25 Billion since the start of October 2024. The selling has been the story on all the trading days of October, with October recording highest monthly FPI selling in the last 30 years since FPIs started investing in India. More importantly, the intensity of selling raises some serious questions on whether a recovery in FPI flows is possible in the near future?

In the 5 weeks to September 27, 2024; FPIs had infused $2.83 Billion, $696 Million, $2.01 Billion, $1.31 Billion, and $2.82 Billion respectively; taking the total infusion in these 5 weeks to a whopping $9.70 Billion. However, in the next 3 weeks till October 18, 2024, FPIs have already taken out $(9.14) Billion from India equities, entirely neutralizing all the good work of August and September 2024. However, if you take a slightly longer term picture since the formation of the Modi 3.0 government, FPIs are still net buyers in Indian equities to the tune of $6.75 Billion. For now, the concern is on momentum. The India story may still be intact from a long term perspective, but in tumultuous times, that would hardly satiate investors.

MACRO FPI FLOW PICTURE UP TO OCTOBER 18, 2024

The table captures monthly FPI flows into equity and debt for the last 3 calendar year viz., 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)
Jun-2024 (₹ Crore)	24,345.55	2,218.99	26,564.54	15,192.90	41,757.44
Jul-2024 (₹ Crore)	26,059.05	6,305.79	32,364.84	16,431.20	48,796.04
Aug-2024 (₹ Crore)	(5,552.01)	12,872.13	7,320.12	18,173.17	25,493.29
Sep-2024 (₹ Crore)	46,552.40	11,171.24	57,723.64	35,813.99	93,537.63
Oct-2024 (₹ Crore) #	(83,082.62)	5,381.34	(77,701.28)	(488.54)	(78,189.82)
Total for 2024 (₹ Crore)	(48,528.61)	71,436.52	22,907.91	1,56,535.48	1,79,443.39
For 2024 ($ Million)	(5,756.10)	8,555.58	2,799.48	18,770.90	21,570.38
# – Recent Data is up to October 18, 2024

Data Source: NSDL (Negative figures in brackets)

If you compare 2024 with the calendar year 2023, then the results are still flattering on an overall basis; although it must be said that October has played spoilsport. For instance, the calendar year 2023 saw net FPI inflows of ₹2.37 Trillion, while the inflows in calendar 2024 had already touched ₹2.35 Trillion by the end of September. However, in the last 3 weeks that number has deteriorated and come down to just ₹1.79 Trillion. However, the break-up also tells the story of how debt has dominated in the year 2024. If you look at the net flows into equity; it stood at ₹1.71 Trillion in the year 2023, but has fallen to a mere ₹0.23 Trillion in year 2024 till date.

While FPI flows into IPO are better in 2024 than in 2023 and 2022, it is in secondary market equity flows that 2024 is falling grossly short of 2023. Let us also look at the picture of debt flows. In 2023, the net inflows from FPIs into debt was to the tune of ₹0.66 Trillion, while debt inflows have already touched ₹1.57 Trillion in year 2024 till date. In short if net equity flows were 72.2% of total FPI flows in the year 2023, the ratio falls to just 12.8% in the year 2024 till date. Clearly, the combination of index inclusion and FAR bonds have given a big boost to FPI debt flows; pegged at 87.2% of total net FPI inflows in 2024. In 2024, it is debt flows that have bailed out the FPI story!

FPI SENTIMENTS – THE WEEK THAT WAS

For the latest week to October 18, 2024, FPIs remained net sellers to the tune of $(2.26) Billion for the third week in a row. From a broader perspective, FPIs have been net sellers in equities to the tune of $9.25 Billion in the first 13 trading sessions of October. Here is what drove FPI sentiments in the week.

1. The CPI inflation for the month of September 2024, came in sharply higher at 5.49%. It was all the more disappointing as it came just after 2 consecutive months of sub-4% inflation. The WPI inflation, announced on the same day, also spiked from 1.31% to 1.84%, indicating that the CPI inflation and WPI inflation were now moving more in tandem. In the case of CPI inflation, the pressure came largely from the food basket which spiked from 5.66% to 9.24% in September; largely on the back of a sharp spike in the prices of vegetables due to the delayed withdrawal of monsoons. Core inflation also edged up by 10 bps and the inflation spike could have been higher, but for the sobering effect of energy inflation during the month.
2. In a sense, the higher than expected CPI and WPI inflation could have the combined impact of delaying the rate cuts by the RBI. While the RBI held status quo in its October monetary policy, there were hopes that the rate cut could come in December 2024. However, with the spike in inflation, and the apprehensions expressed by the RBI governor over rate cuts; it looks like the rate cuts may be put off to February 2024. That does raise questions over the impact it could have on the cost of funds of Indian corporates.
3. Trade deficit for September 2024 sobered to $20.8 Billion after it had almost gotten close to $30 billion in the previous month. Exports continue to struggle due to weak global demand while imports have been hit by higher freight costs and higher insurance costs. For the first half of FY25, the merchandise trade deficit stood at $137.44 Billion while the combined trade deficit (after adjusting for the services trade surplus) came in 24.1% higher yoy at $54.83 Billion. The hints are of the current account deficit for FY25, now getting closer to the range of 1.8% to 2.0% of GDP. That may be on the higher side.
4. In Fed Speak this week, Neil Kashkari underlined that the US Fed would persist with its rate cuts but it could be more calibrated from here on. There is a reason why Neil Kashkari’s views elicit a lot of interest. He is one of the few Fed governors with a strong financial markets background. He was originally a dove, but later converted into a hawk and was one of the few members of the FOMC (other than Michelle Bowman), who was against rate cuts. Kashkari’s warning that rate cuts may not be as aggressive as expected, could be the story to watch out for.
5. The biggest IPO in the history of Indian primary markets had a tepid response on the last day of its IPO. Last week, the Rs27,800 Crore IPO of Hyundai Motor India closed with total subscription of around 2.6 times. However, that was a virtual institutional bailout with the QIB portion getting oversubscribed 6.97 times. However, the retail portion of the IPO was subscribed only 0.5 times while the HNI / NII portion was subscribed only 0.6 times. This raises question about other big-ticket IPOs that are coming up like HDB Financial and Swiggy, where retail response is going to be a key factor.
6. In the latest quarter (Q2FY25), there have been some concerns over the results of heavyweights. Reliance Industries has seen pressure on its core O2C business with profits fall in the quarter. The GRMs have been under pressure. Bajaj Auto saw 32% fall in profits and also guided festival sales growth to fall to 3-5%, compared to 8% last year. Above all, HDFC Bank NIMs are under pressure at 3.46% and loan growth is slowing.

The next big trigger for the markets will be coming from the remaining Q2 results and the minutes of the RBI MPC, which are expected in the coming week.

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 flows
23-Sep-24	15,181.36	15,181.36	1,818.30	1,818.30
24-Sep-24	2,031.72	17,213.08	243.29	2,061.59
25-Sep-24	-1,454.09	15,758.99	-173.86	1,887.73
26-Sep-24	-636.66	15,122.33	-76.20	1,811.53
27-Sep-24	8,537.58	23,659.91	1,020.01	2,831.54
30-Sep-24	936.50	24,596.41	111.93	2,943.47
01-Oct-24	-6,426.84	18,169.57	-767.03	2,176.44
02-Oct-24	0.00	18,169.57	0.00	2,176.44
03-Oct-24	-5,208.58	12,960.99	-621.44	1,555.00
04-Oct-24	-15,506.75	-2,545.76	-1,847.15	-292.15
07-Oct-24	-9,645.10	-12,190.86	-1,148.69	-1,440.84
08-Oct-24	-8,126.70	-20,317.56	-967.79	-2,408.63
09-Oct-24	-5,380.70	-25,698.26	-641.02	-3,049.65
10-Oct-24	-3,679.26	-29,377.52	-438.21	-3,487.86
11-Oct-24	-4,736.97	-34,114.49	-564.14	-4,052.00
14-Oct-24	-4,031.40	-38,145.89	-479.60	-4,531.60
15-Oct-24	-3,558.36	-41,704.25	-423.25	-4,954.85
16-Oct-24	-1,533.83	-43,238.08	-182.44	-5,137.29
17-Oct-24	-2,563.80	-45,801.88	-304.97	-5,442.26
18-Oct-24	-7,302.99	-53,104.87	-869.09	-6,311.35

Data Source: NSDL

FPIs Turned net sellers for 3 weeks in a row; after 6 consecutive weeks of net buying in Indian equities. The latest week saw FPIs net selling Indian equities to the tune of $(2.26) Billion taking the total net selling by FPIs since the start of October 2024 to $9.25 Billion. The entire infusion of over $9.7 Billion since August, has been wiped out in 3 weeks of October.

• In previous 7 rolling weeks, FPIs saw net outflows of $(3.760) Million, $(3,124) Million; and net inflows of $2,832 Million, $696 Million, $2,010 Million, $1,309 Million, and $2,816 Million. In the latest week to October 18, 2024 net FPI equity outflows were to the tune of $(2,259) Million; which is 3 consecutive weeks of sharp selling in equities.
• If you look at the last 4 rolling weeks on a cumulative basis, total net FPI outflows from equities were to the tune ₹(53,105) Crore or $(6,311) Million; largely spoilt by the sell-off in the last 3 weeks. In the recent week also, selling was rampant on all 5 trading days.

The concerns, now, are less on global geopolitics and more on internals like Q2 results and inflation.

TRIGGERS FOR FPI FLOWS IN COMING WEEKS?

There are a number of big triggers for FPI flows in the coming week. Here is a quick dekko at some of the key triggers.

• Q2FY25 company results will be the key data input for FPIs this week as the banking and telecom results re expected in the coming two weeks.
• The RBI MPC will announce the minutes of the October meeting this week, and the markets will look for debate cues on whether the RBI plans to cut rates at all.
• Oil prices will be in focus, after Brent prices cracked to $73/bbl last week amidst demand concerns, which even the OPEC has admitted to. Supply glut could be back soon.
• The next couple of weeks will see 2 more mega IPOs of HDB Financial and Swiggy. Both these IPOs will be critical for FPI flows.

After 3 weeks of FPI selling to the tune of $9.25 Billion, some amount of jitters are visible on the street. It remains to be seen, how much longer, domestic QIBs can support markets!