Weekly Musings – FPI flows for week ended September 06, 2024

9 Sep 2024 , 12:24 PM

FPIS NET BUYERS EVEN IN FALLING MARKETS
The week to September 06, 2024 saw the Nifty and the Sensex coming under a lot of pressure, especially in the second half of the week. However, FPIs continued to be net buyers in this week to the tune of $1.31 Billion. One can argue that this is lower than the previous week FPI inflows of $2.82 Billion but that may not really be a concern. The caution could be attributed to the US jobs data which was to be announced on Friday. In the last few weeks, the IPO markets have also been quite robust with FPIs participating quite aggressively in the IPOs; both as anchor investors and later as QIB investors in the IPO. For the year 2024 so far, the FPIs have been net buyers in equities, but the flows have essentially come from the primary markets; while being net sellers in secondary markets.

There is a key reason why the FPI flows of the current week are not comparable with the previous week. Last week, the FPI inflow of $2.82 Billion was largely driven by the passive fund adjustment for index changes on the last day of the month. If you discount that, the two weeks are almost comparable. Also, the IPO flows were slower, but the next week has the mega Bajaj Housing Finance IPO, where most of the FPIs have been aggressive investors. The good news is that if you look at FPI flows from June 2024, post the formation of the Modi 3.0 government, FPIs have already infused more than $12.5 Billion into Indian equities. However, it is also time to look at some of the factors that could spell trouble for FPI flows.

ARE THERE RISKS TO FPI FLOWS AT THIS JUNCTURE?

In the last few weeks, the data flows have been positive for FPI flows. However, that is not to deny the fact that there are some key risks to the FPI flows, that could manifest itself in various forms in the coming months. Let us look at some of the immediate risks.

• Consumer inflation remains the first major risk factor. In July 2024, the consumer inflation had fallen to a low of 3.54%, but that can be attributed more to the base effect and less to the lowering of inflation. The inflation reading for August and September will be more critical for two reasons. Firstly, the impact of the base effect will be substantial lower, so we get to see the real inflation picture. Secondly, more comprehensive data on the monsoons and Kharif will be in by then, giving a trigger for food inflation. Any surge in inflation would be negative for FPI flows.
• In recent weeks, several data points have been quite strong for India. For instance, the nominal GDP has been sharply higher yoy, despite lower real GDP. Core sector growth has been above 6% and the fiscal deficit is largely in control. Amidst all these conditions, there is the all-important current account deficit (CAD) update for the first quarter of FY25 coming in later in September. The first quarter of FY25 has been tough for the trade account while services have struggled to keep pace. The Q1FY25 CAD data could raise some concerns about full year picture. FPIs tend to be sensitive about CAD levels.
• The biggest concern for FPI flows will be how the Fed reacts to the jobs data and what it means for RBI action. Fed has hinted at 25 bps rate cut, but the jobs data continues to show pressure. For example, the unemployment is just marginally down by 10 bps at 4.2% while the number of person out of jobs in absolute terms is constant. That means, the Fed may be inclined to cut rates by 50 bps in September and then take up future rate cuts on a data-driven basis. If that happens, and the RBI is late off the block to cut rates, then we could see some real pressure on FPI flows into Indian equities.

Clearly, the FPIs are going to be looking at several triggers like the upcoming CAD data, the details of the kharif output this year and the RBI strategy on rates. FPI flows may be volatile in the near term, till there is clarity on most of these issues.

MACRO FPI FLOW PICTURE UP TO SEPTEMBER 06, 2024

The table captures monthly FPI flows into equity and debt for 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) #	9.642.64	1,338.66	10,981.30	8,105.89	19,087.19
Total for 2024 (₹ Crore)	(2,355.75)	56,222.60	53,886.85	1,29,295.92	1,83,182.77
For 2024 ($ Million)	(267.69)	6,740.35	6,472.66	15,522.71	21,995.37
# – Recent Data is up to September 06, 2024

Data Source: NSDL (Negative figures in brackets)

FPIs turned net buyers in the latest week to September 06, 2024, to the tune of $1,309 Million. Combined with the $3,400 Million infusion in the previous 2 weeks, this more than offsets the FPI selling in equities to the tune of $2.70 Billion in 3 weeks prior to that. One can take solace from the fact that post the election outcome, the FPIs had infused $9.04 Billion over 5 weeks; and now in post-government formation terms, Indian equities have seen net FPI flows to the tune of more than $12.50 Billion.

For calendar 2024 so far, FPIs were net buyers to the tune of $21,995 Million. Out of this figure, FPIs net bought equities worth $6,473 Million and were net buyers in debt worth $15,523 Million. For 2024, till date, net debt market inflows accounted for 70.7% of total net FPI flows into India. Year 2024 has been more about debt flows and less about equity flows; albeit with the dominance of debt flows lower than the previous week. As of the close of September 06, 2024, the FPIs were still net sellers in secondary market equities worth $(268) Million, while the buying in IPOs more than compensated for that at $6,740 Million.

FPI SENTIMENTS – THE WEEK THAT WAS

For the latest week to September 06, 2024, FPIs underlined their position as net buyers to the tune of $1,309 Million. FPIs have now been net buyers for 3 weeks in a row, after being net sellers for 3 weeks prior to that. However, what really matters is that in the aftermath of the government formation (Modi 3.0), the FPIs have infused a decisive $12.5 Billion into Indian equities. Here is what drove FPI sentiments this week.

1. The US Bureau of Labour Statistics announced the unemployment data for August. The unemployment figure at 4.2% was only marginally lower than the previous month, although the absolute numbers are almost the same. The non-farm payroll additions were higher at 142K in August compared to 114K in July. However, it must be remembered that the non-farm payroll additions for June and July were lowered in the revised estimates with more data points coming in.
2. With the next Fed meeting coming up on September 18, 2024, the focus shifts to the CME Fedwatch and what colour it paints about the trajectory of rates. The CME Fedwatch is already assigning a 100% probability to 25 bps rate cut and 70% probability to 50 bps rate cut in the September meet. In addition, the CME Fedwatch is expecting rate cuts to the tune of 100 bps by end of 2024 and up to 225 bps by end of 2025. This may sound aggressive, but a lot will depend on whether the Fed cuts rates by 25 bps or by 50 bps when it meets on September 18, 2024.
3. The Ministry of Defence has approved 10 major defence proposals worth ₹1.45 Trillion. This is likely to be used for procurement of combat vehicles, air defence fire control radars, Dornier Aircraft, and offshore patrol vehicles. These additions are likely to make a big difference to the defence preparedness of India. But more importantly, nearly 90% of these orders will be farmed out domestically, hinting at substantial business and top line gains for Indian defence companies. The impact will be much clearer in coming days.
4. The price of Brent crude cracked sharply to $71/bbl. It opened the week at $77/bbl and the fall has been really rapid. The sharp fall came after recent reports by Citigroup and Bank of America hinted at Brent Crude prices dipping to around $60/bbl. That led to rapid unwinding of positions in the oil futures market. The reasons cited by the brokerages are weak oil demand, an oversupplied oil market, and signals of slowdown in the US and also in China. All these factors are likely to be bearish for oil prices. For the Indian economy, it is likely to be a big boost as it will bring CAD under control and is likely to be positive for FPI flows.
5. FPI flows in August defensive tilt in terms of selection of sectors. For the month overall, FPIs were net buyers in equities to the tune of $876 Million. The big positive flows came into sectors like healthcare, consumer durables, consumer services, information technology (IT), and fast moving consumer goods (FMCG). However, the selling was prominent in sectors like BFSI, metals & mining, automobiles, realty, cement, and power. Clearly, there appears to be a shift in the FPI sentiments from cyclical industrials to the non-cyclical defensives.
6. The IPO market is bracing up for some real big action. The coming week will see the ₹6,560 Crore Bajaj Housing Finance IPO opening for subscription, with the anchor allotment already robust at nearly 30% completed. Among other big issues in the anvil are the ₹9,950 Crore IPO of Hexaware Ltd, which will be an OFS by Carlyle Fund. In addition, there are also big IPOs coming up from Zepto and HDB Financial (the NBFC arm of HDFC Bank) in the next few months.

With the US labour data out of the way, the attention will shift to how the US inflation for August pans out and then, of course, the all-important Fed meeting outcome on September 18, 2024. The action and the language will be the next big thing for FPI flows.
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
12-Aug-24	-1,161.33	-1,161.33	-138.42	-138.42
13-Aug-24	-2,811.08	-3,972.41	-334.77	-473.19
14-Aug-24	-1,419.70	-5,392.11	-169.08	-642.27
15-Aug-24	0.00	-5,392.11	0.00	-642.27
16-Aug-24	-2,377.62	-7,769.73	-283.26	-925.53
19-Aug-24	1,196.49	-6,573.24	142.51	-783.02
20-Aug-24	-1,756.42	-8,329.66	-209.30	-992.32
21-Aug-24	4,034.96	-4,294.70	481.61	-510.71
22-Aug-24	-430.70	-4,725.40	-51.32	-562.03
23-Aug-24	1,852.13	-2,873.27	220.60	-341.43
26-Aug-24	3,882.05	1,008.78	462.84	121.41
27-Aug-24	969.41	1,978.19	115.61	237.02
28-Aug-24	4,794.61	6,772.80	571.18	808.20
29-Aug-24	-574.83	6,197.97	-65.25	742.95
30-Aug-24	14,526.64	20,724.61	1,731.63	2,474.58
02-Sep-24	1,503.96	22,228.57	179.32	2,653.90
03-Sep-24	5,759.81	27,988.38	686.71	3,340.61
04-Sep-24	3,035.79	31,024.17	361.61	3,702.22
05-Sep-24	1,585.93	32,610.10	188.87	3,891.09
06-Sep-24	-904.19	31,705.91	-107.67	3,783.42

Data Source: NSDL

FPIs sustained the net buying for third week in a row after being net sellers for 3 weeks. In the latest week, the FPIs infused an impressive $1.31 Billion into Indian equities, over and above the $3,400 Million infused in the previous 2 weeks. In the 3 months since the formation of the Modi 3.0 government, FPIs have infused more than $12.5 Billion into Indian equities; a signal of FPI confidence back on track. Here are key FPI data takeaways.

• In previous 7 rolling weeks, FPIs saw net inflow of $2,816 Million, $584 Million; net outflows of $(926) Million, $(1,479) Million, $(281) Million, and net inflows of $349 Million, and $1,845 Million. In the latest week to September 06, 2024 net FPI equity inflows were an optimistic $1,309 Million.
• If you look at the last 4 rolling weeks on a cumulative basis, total net FPI inflows into equities were to the tune ₹31,706 Crore or $3,783 Million. In fact, the last 6 trading sessions saw more than $3 Billion infused by FPIs into Indian equities.

The positivity in the FPI flows on a rolling basis, looks here to stay. Let us finally turn to

TRIGGERS FOR FPI FLOWS IN COMING WEEKS?

The big news last week was the US employment data, and that is now out of the way. While it had no nasty surprises, the jobs market suddenly seems to have become tighter with the supply exceeding demand. In the coming weeks, 3 factors will impact the FPI flows in India.

• The big data point now will be the India and US inflation data. It remains to be seen if India inflation stays subdued, but US inflation will be the last big data point for Fed.
• There is the big FOMC meet coming up on September 18, 2024 and the FPIs will be watching the Fed action and also the language of the Fed.
• Another big data point in the coming weeks will be the current account deficit for Q1FY25, which is likely to be sharply higher than last year.

FPI flows are still in a state of flux. The last 3 weeks have seen positive FPI flows. However, with $12.5 Billion flowing into Indian equities since Modi 3.0, the question is; how much more? For now, the answer will depend on what happens at the upcoming FOMC meet!