Weekly Musings – FPI flows for week ended October 25, 2024

28 Oct 2024 , 08:11 AM

FPI SELLING – INTIMIDATING AT $10.22 BILLION IN OCTOBER 2024

It is already the worst month in terms of FPI selling in Indian equities, since the time FPIs first started investing in India over 32 years ago. At $10.22 Billion,  it was intense FPI selling in October 2024. This is after considering the steady inflows of FPIs into IPOs, so that means, the secondary market selling has been a lot more intense than what the number reveal. Also, the FPIs had been consistent buyers in debt and, even there, the tempo appears to have slowed down in October 2024. There are several reasons for this sell-off.

The geopolitical situation in the Middle East and West Asia is getting worse by the day and FPIs feel that India may pay a steep price in terms of oil and imported inflation. Q2FY25 results have been discouraging on several fronts; but the two apparent reasons have been higher cost of funds and a slowdown in urban consumer demand. There are also valuation concerns in India, with the Buffett ratio at 136%, against its historical average of around 91%. To add to the problem, FPIs are suddenly finding other emerging markets a lot cheaper and most FPIs are using this tumult in the markets to reallocate funds out of India.

FPI SELLING – HYUNDAI MOTOR INDIA IPO IS SAVIOUR OF THE WEEK

In the 18 trading days of October, the overall net selling by FPIs in equities was to the tune of $10.22 Billion. This comes after $2.04 Billion in IPO inflows, so the secondary market selling by FPIs in Indian equities has been to the tune of $12.26 Billion. In the latest week to October 25, 2024, the FPIs were net sellers to the tune of $962 Million. Out of the 5 trading sessions in the week, the FPIs were net sellers on 4 days; infusing $1.27 Billion on Tuesday, October 22, 2024. This is largely the inflows from the Hyundai Motor India IPO. It not only saw an anchor allocation of $1 Billion, but even the subscription shortfall in the retail and the HNI portion got allocated to the QIBs. Had it not been for the Hyundai IPO infusion, the selling in the latest week would have also been as intense as the previous weeks. With Muhurat Trading scheduled on November 01, 2024, the million dollar question is what it could mean for stock markets in the new Samvat 2081.

FPI SELLING – WHAT TO EXPECT ON MUHURAT TRADING DAY?

As the Mahurat Trading week starts, the million dollar question is; what will the FPIs do in the next year. Year 2024 has been positive for debt and IPO flows, but secondary market flows into equities have been deep in the negative. For now, the FPIs are likely to stay cautious as the divergence in the Buffett Ratio from the historical average is quite high. One reason the FPIs are cautious is that the earnings in the latest quarter have struggled to keep pace with the aggressive expectations of the market. FPIs would seek some more clarity and answers to a few questions. Does the government plan to sustain its focus on driving capex, apart from reining in the fiscal deficit? Are rapid reforms going to be continue to be top on the agenda? What is the thinking of the RBI with respect to rate cuts, since there are already signs of hard landing? Above all, can India continue to be the fastest growing large market in the world; with GDP growth likely to taper in FY25? We have to wait and watch!

REALITY CHECK FOR FPI FLOWS IN OCTOBER 2024

A lot can change in stock markets in a span of just one month and; the month of October 2024 has come as a classic wake-up call to smug analysts and economists. The numbers on the FPI flows front are quite intimidating. The pressure of FPI outflows sustained  for the fourth week in a row, with FPIs net selling $10.22 Billion since the start of October 2024. The selling has been the story of 17 out of the 18 trading days of October, with the month recording highest monthly FPI selling in the last 30 years since FPIs started investing in India. More importantly, the intensity of selling raises serious questions on whether a recovery in FPI flows is possible in the next couple of months?

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 4 weeks till October 25, 2024, FPIs have already taken out $(10.22) 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 $5.55 Billion. It is the momentum that appears to be elusive at this juncture. The India story may be intact from a long term perspective, but in tumultuous times, that would be enough to please the investors.

MACRO FPI FLOW PICTURE UP TO OCTOBER 25, 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) #	(1,02,931.94)	17,141.65	(85,790.29)	(4,186.36)	(89,976.65)
Total for 2024 (₹ Crore)	(68,377.93)	83,196.83	14,818.90	1,52,837.66	1,67,656.56
For 2024 ($ Million)	(8,117.06)	9,954.38	1,837.32	18,331.09	20,168.41
# – Recent Data is up to October 25, 2024

Data Source: NSDL (Negative figures in brackets)

If you compare 2024 with the calendar year 2023, then the FPI flows are still flattering on an overall basis; although it must be said that October has 2024 has been a reality check. 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 4 weeks that number has deteriorated and come down to just ₹1.68 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 ₹0.15 Trillion in year 2024 till date.

While FPI flows into IPO are nearly double in 2024 compared to 2023, it is in secondary market equity flows that 2024 has taken it on the chin. 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 ₹1.53 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 8.84% 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 91.16% of total net FPI inflows in 2024. There is a more interesting story of the components of FPI flows in calendar 2024. The net FPI inflow of $20.17 Billion in 2024 till date is comprised of FPI inflows into debt of $18.33 Billion, FPI inflows into IPOs of $9.95 Billion, and FPI secondary market FPI outflows of $(8.12) Billion.

FPI SENTIMENTS – THE WEEK THAT WAS

For the latest week to October 25, 2024, FPIs were net sellers of $(962) Million for the fourth week in a row. From a broader perspective, FPIs have been net sellers in equities to the tune of $10.22 Billion in the first 18 trading sessions of October. Here is what drove FPI sentiments in the week.

• The RBI Monetary Policy Committee (MPC) announced the minutes of the October meeting with the underlying theme clearly being one of caution towards inflation. If one goes through the individual presentations of the MPC members, the concerns are largely around consumer inflation. There were specific concerns that, even assuming food inflation tapered, core inflation was sticky and energy inflation was showing a tendency to become an embarrassment. Above all, with the situation in West Asia still fluid, India still runs the risk of imported inflation. Post the minutes, the broad street consensus was that the rate cuts may eventually happen in February 2025, instead of December 2024.
• The geopolitical situation in West Asia continued to indicate that major powers in the region were on the brink of war. Israel and Iran may still not be openly at war, but the casualties of the war have been rising and global trade is already paying a huge cost. There are also concerns that, if Israel intensifies its attacks on the Hamas, Hezbollah, and the Houthis; then more GCC nations may come out against Israel.
• The global situation also remains fluid ahead of the all-important presidential elections in the US. The race between Donald Trump and Kamala Harris has been neck-and-neck with Trump gaining acceptability in recent weeks. While Trump was always the X-factor, he seems to have improved his ratings and the odds are now equal on both sides. However, expert political observers are of the view that in a close contest, Trump may emerge the clear favourite in swing states.
• Even as big Canadian investors in India like Fairfax group and the Canadian Pension Board (CPPIB) have been steadfast in their India exposure, the diplomatic relations between India and Canada appears to be worsening. Both countries have called back their key diplomats and also expelled the diplomats of the other nation. Justin Trudeau has been apparently trying to cosy up to the Sikh extremists in Canada, which is a sizable and influential group in major parts of Canada. It remains to be seen if better economic sense prevails or whether it eventually impacts the investment flows both ways.
• Brent Crude has spiked in the week to above $76/bbl from lows of $73/bbl last week. While the previous week saw crude prices fall on account of demand concerns and the likely slowdown in China, this week saw the geopolitical situation again worsening in West Asia. With Israel launching concerted attacks on key Iranian installations in the week hours of Saturday, the pressure on oil prices is likely to stay in the coming week too. Oil is already under pressure due to higher freight and insurance costs.
• In the latest quarter (Q2FY25), out of the more than 600 companies that have announced results, revenues are up 11.5% while net profits are up 0.58%. That is also largely driven by positive cues from IT and BFSI. Pressure is visible in sectors like FMCG, hospitality, aviation, infrastructure, oil & gas, metals, and chemicals.

The next will see big data flows on core sector, fiscal deficit as well as US PCE inflation and the advance estimates of Q3GDP in the US.

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
30-Sep-24	936.50	936.50	111.93	111.93
01-Oct-24	-6,426.84	-5,490.34	-767.03	-655.10
02-Oct-24	0.00	-5,490.34	0.00	-655.10
03-Oct-24	-5,208.58	-10,698.92	-621.44	-1,276.54
04-Oct-24	-15,506.75	-26,205.67	-1,847.15	-3,123.69
07-Oct-24	-9,645.10	-35,850.77	-1,148.69	-4,272.38
08-Oct-24	-8,126.70	-43,977.47	-967.79	-5,240.17
09-Oct-24	-5,380.70	-49,358.17	-641.02	-5,881.19
10-Oct-24	-3,679.26	-53,037.43	-438.21	-6,319.40
11-Oct-24	-4,736.97	-57,774.40	-564.14	-6,883.54
14-Oct-24	-4,031.40	-61,805.80	-479.60	-7,363.14
15-Oct-24	-3,558.36	-65,364.16	-423.25	-7,786.39
16-Oct-24	-1,533.83	-66,897.99	-182.44	-7,968.83
17-Oct-24	-2,563.80	-69,461.79	-304.97	-8,273.80
18-Oct-24	-7,302.99	-76,764.78	-869.09	-9,142.89
21-Oct-24	-5,143.98	-81,908.76	-611.86	-9,754.75
22-Oct-24	10,709.59	-71,199.17	1,273.82	-8,480.93
23-Oct-24	-3,827.33	-75,026.50	-455.25	-8,936.18
24-Oct-24	-4,990.74	-80,017.24	-593.60	-9,529.78
25-Oct-24	-4,836.55	-84,853.79	-575.27	-10,105.05

Data Source: NSDL

FPIs have been net sellers for 4 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 $(962) Million taking the total net selling by FPIs since the start of October 2024 to $10.22 Billion. The infusion of over $9.7 Billion since August, has been wiped out in 4 weeks of October.

• In previous 7 rolling weeks, FPIs saw net outflows of $(2,259) Million, $(3.760) Million, $(3,124) Million; and net inflows of $2,832 Million, $696 Million, $2,010 Million, and $1,309 Million. In the latest week to October 25, 2024 net FPI equity outflows were to the tune of $(962) Million; which is 4 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 ₹(84,854) Crore or $(10,105) Million; largely spoilt by the sell-off in the last 4 weeks.

The concerns, now, are on global geopolitics and 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.

• With the geopolitical situation likely to get tougher in West Asia, oil prices could be in focus in the coming week.
• All eyes will be on the September core sector growth after India had reported its first infrastructure contraction in 4 years last month.
• The week will also see the half-yearly update of the fiscal deficit, which will provide cues on whether the government can really focus on boosting capex growth.
• In the US, the data focus next week will be on the September PCE inflation and on Q3 GDP. It will hold the key to rate action in the next Fed meet on November 07, 2024.

After 4 weeks of FPI selling to the tune of $10.22 Billion, there are jitters visible on the street. Domestic institutional support is likely to get strained if FPI selling persists for longer.