Weekly Musings – FPI flows for week ended September 08, 2023

11 Sep 2023 , 06:46 AM

If August was a whimper in FPI flows compared to May, June, and July; then September has started off on a negative note. In August 2023, FPIs infused just Rs12,262 crore or $1.48 billion compared to an average net inflow of $5.5 billion from FPIs in the months of May, June, and July 2023. However, after positive net infusion of $18.5 billion in last 4 months, the FPIs turned net sellers in September 2023. In week to September 08, 2023 the FPIs were net sellers in Indian equities to the tune of $658 million. Of course, this is just one-week data and may not be necessarily representative of the full story for September. However, September has never been a great month for FPI flows and that will work against FPI flows. FPIs have turned risk-off since Fitch downgraded US debt by a notch and Moody’s downgraded US mid-sized banks. However, the latest week saw uncertainty around the slew of data flows expected in the coming week.

In the latest week to September 08, 2023, the FPI outflows from equities were $(658) million, compared to net inflows of $343 million, $278 million, $617 million, and $641 million in the previous 4 weeks. FPIs have also been slightly ambivalent as the trajectory of the US rates is still not too clear. The CME Fedwatch is giving a mixed picture and there are some important data points coming up next week. India inflation is expected to remain above 7% in August after reporting 7.44% inflation in July 2023. The IIP data will also be announced and the markets would want to do a check on whether industrial growth has been impacted by the hawkish tone globally. Above all, in the latest week, FPIs were net sellers for 4 out of the 5 trading days and that shows negative sentiments building up.

FPI flows reverse gear in the week to September 08, 2023

The month of August 2023 was relatively tepid compared to the robust flows of May, June, and July. However, the FPI flows were still positive in August with FPIs infusing as much as $1.48 billion into Indian equities in August. This may be a fourth of the average flows between May and July, but then positive flows are positive, nevertheless. FPIs were net sellers to the tune of $658 million in equities in the latest week, while FPIs were net buyers in debt, the amount was quite small, so FPIs stayed net sellers on an overall basis. Here were 3 of the key drivers for FPI flows during the week.

• There was a lot of caution ahead of big data flows in the coming week. There is the all-important India consumer inflation coming out this week. After 7.44% inflation in July, it is expected to stay above 7% for August also. That is likely to be an overhang for FPI sentiment as this high inflation makes a very strong case for the RBI to hike rates. Remember, RBI has been on a rate pause since  February this year and another month of high inflation reading may put pressure on RBI to hike rates. The other big piece of domestic data will be the IIP flows, the trade data flows and the input on WPI inflation. FPI flows are just being cautious ahead of these numbers.

   

• It is not just the India data but even the global data flows are likely to have a bearing on the FPI flows. The US consumer inflation will also be announced during the week. Last month, US consumer inflation had jumped from 3% to 3.3%. A similar trend was seen in the PCE inflation also, this corresponds to the perspective shared by the Fed that more hawkishness was needed to curb inflation spike in the US. Higher rates without guidance on terminal rates, is making the global investors extremely jittery. Already, the recent speeches of the FOMC members have also focused on the need to persist with the hawkish stance. That continues to be an overhang for the FPI flows into India.

   

• Finally, the dual impact of the INR and crude prices also played a key role on FPI flows. The rupee had weakened to well beyond Rs83/$ during the week. However, there was a bout of weakness in the rupee on Friday as it closed the week at 83.12/$. Weak rupee has implications for FPI flows into equity and debt. It is all about defending the dollar returns and if the rupee weakens, then FPIs invested in India tend to lose out in dollar terms. If the rupee is one side of the macro story, the other side is Brent Crude oil, which surpassed $90/bbl during the week. It has macro implications for trade deficit and CAD as well as implications for domestic inflation and the cost of inputs for Indian companies. Supply is favouring oil sellers and that will be a key driver of FPI flows.

In a nutshell, it is a mix of factors leading to negative FPI flows in recent weeks. It remains to be seen if FPIs come back to invest in India, and whether September is the proverbial lull before the deluge of FPI inflows. It must be underlined here that the longer term perspective of Indian equities still remains positive. After all, it is hard to give a miss to an economy that is the fastest growing large economy and where the GDP is transmuting from $3.5 billion to $5 billion in the next 5 years. However, in the short term, there are often few takers for a secular long-term story.

Macro FPI flow picture up to September 08, 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 #	-4,454.93	252.29	-4,202.64	566.15	-3,636.49
Total for 2023	1,08,175.92	22,908.05	1,31,083.97	24,942.82	1,56,026.79
# – September Data is up to 08th September

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

This is the longer term picture that we are talking about. The longer term FPI flows captured in the table above provide a much better perspective. It still continues to be very positive, especially if you look at the 2023 FPI flows data in the backdrop of the tepid FPI flows data for 2022. A cursory glance at the above table would tell you that inflows into equities in 2023 has more than offset the outflows in 2022. For instance, as of date in 2023, the FPI inflows into equity stand at Rs1.31 trillion compared to outflows of Rs1.21 trillion in 2022. The story remains positive, even if you look at overall flows of equity and debt combined. Against net outflows of Rs1.33 trillion in 2022, the FPIs have infused Rs1.56 trillion overall into equity and debt till date in 2023. It is unlikely that the long term view may really shift.

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 September 08, 2023.

Date	FPI Flow (Rs Crore)	Cumulative flows	FPI Flow($ billion)	Cumulative flow
14-Aug-23	-2,534.61	-2,534.61	-306.18	-306.18
15-Aug-23	0.00	-2,534.61	0.00	-306.18
16-Aug-23	0.00	-2,534.61	0.00	-306.18
17-Aug-23	8,643.48	6,108.87	1,041.99	735.81
18-Aug-23	-986.97	5,121.90	-118.73	617.08
21-Aug-23	574.85	5,696.75	69.19	686.27
22-Aug-23	-1,277.22	4,419.53	-153.67	532.60
23-Aug-23	-108.75	4,310.78	-13.09	519.51
24-Aug-23	901.63	5,212.41	108.73	628.24
25-Aug-23	2,205.79	7,418.20	267.20	895.44
28-Aug-23	-1,706.33	5,711.87	-206.45	688.99
29-Aug-23	2,476.01	8,187.88	299.71	988.70
30-Aug-23	792.77	8,980.65	95.92	1,084.62
31-Aug-23	9.86	8,990.51	1.19	1,085.81
01-Sep-23	1,258.56	10,249.07	152.23	1,238.04
04-Sep-23	1,778.00	12,027.07	215.09	1,453.13
05-Sep-23	-2,375.64	9,651.43	-287.13	1,166.00
06-Sep-23	-1,311.57	8,339.86	-158.13	1,007.87
07-Sep-23	-2,832.84	5,507.02	-340.94	666.93
08-Sep-23	-719.15	4,787.87	-86.45	580.48

Data Source: NSDL

The week to September 08, 2023 saw net FPI outflows of $(658) million which is a virtual reversal of the underlying trend seen over the past few months. That could be partially due to block selling by FPIs, but that does not explain the full picture. Here are some key takeaways.

• In the previous 3 rolling weeks, FPI infusion into Indian equities has been $343 million, $278 million, and $617 million. The latest week saw net FPI outflows at $(658) million; with most of the pressure coming from the secondary market selling.

   

• If you look at the last 4 rolling weeks on a cumulative basis, total FPI flows into Indian equities were just Rs4,788 crore or $581 million. In the last 20 trading sessions, there have been 8 days of net buying, 2 days of holidays and 10 days of net selling. This shows a clear shift compared to previous weeks with FPIs net sellers in 4 of 5 days this week.

Potential drivers of FPI flows in coming weeks?

There will be 4 key drivers of FPI flows in the coming week to Septeber15, 2023.

• Firstly, the US consumer inflation will be a key determinant of FPI flows into India. As of now the CME Fedwatch is ambivalent about whether on status quo or on a rate hike of 25 bps for the year 2023. That will depend on whether the August inflation trend after the 30 bps bounce in inflation seen in July.

   

• Not just the US inflation, but even the India inflation reading gets announced next week. After July inflation came in at 7.44%, the August inflation is also likely to be well above 7%. The markets will look for positive surprises and FPI flows will large depend on the direction of inflation in India. High inflation is not a preferred situation by FPIs.

   

• Needless to say, the Nifty levels will play a key part. If the Nifty is able to breach above the 20,000 mark in this week, then FPI flows may again shift into positive gear; at least by October, if not by the second half of September. For now, the low VIX is indicating that the Nifty may break above the 20,000 levels during the coming week.

   

• Crude oil prices and the USDINR movements will have a bearing on FPI flows. Normally, the FPIs prefer a stable rupee since it protects their dollar returns better. If the rupee is able to stay under 83/$ without RBI intervention; that would be the ideal scenario for FPIs. On the oil front, FPIs are not comfortable investing in India with crude prices above $90/bbl in the Brent Crude market. Lower crude prices will offer a big boost to the FPI flows in the coming weeks.

Currently, the typical FPI trade continues to be long on domestic India plays and short on global plays. However, in recent weeks, we have seen two new trends come up. Firstly, FPI buying interest has been visible in IT and healthcare stocks. That is less a statement on the attractiveness of the sector and more a statement that FPIs want to hedge their dollar risk by investing in IT and healthcare stocks. Secondly, there is a big bet that these FPIs are making that the capital investment cycle in India will revive. August saw FPIs infusing nearly $2 billion into power and capital goods. If that trend continues, it could still be icing on the cake for the Indian markets.