Weekly Musings – FPI flows for week ended September 13, 2024

17 Sep 2024 , 02:29 PM

FPIS REINFORCE THEIR STAMP AS NET BUYERS

The week ahead of the crucial FOMC meeting had several triggers for the FPI flows to reach a new high for the year. The week to September 13, 2024 saw the Nifty and Sensex being rather volatile with higher levels being met with persistent selling pressure. However, FPIs were net buyers on all five trading days and infused a healthy $2.01 Billion into Indian equities in the week. In the previous two weeks, the FPIs had infused $1.31 Billion and $2.82 Billion respectively; and the current week has continued that positive trend with $2.01 Billion of infusion by the FPIs. In the last 3 weeks, FPIs have infused $6.14 Billion into India equities, although the market still appears to be tentative at higher levels. The caution could be attributed to the upcoming US Fed meet and the India CAD data. The week also saw smart inflows into IPOs with primary and secondary markets getting a fair share of FPI flows.

If you take a slightly longer perspective and look at the FPI flows from the time the Modi 3.0 government was formed in the first week of June 2024, FPIs have been net buyers of nearly $15 Billion in equities. That is just about stocks. They have infused a similar amount into bonds also. Also, if you look at the latest FPI sectoral numbers for the month of August 2024, the month saw a subtle shift. If you look at the sectors with the highest FPI flows; they include Healthcare ($694 Million), Consumer Durables ($862 Million), Consumer Services ($496 Million), IT ($481 Million), and FMCG ($429 Million). All the FPI flow leaders are in the defensive space. Where did the FPIs sell in August? It was BFSI $(-1,430 Million), Metals $(-450 Million), and automobiles $(-282 Million). Clearly, the undertone is of money moving from the cyclical stories to the defensive stories. However, this could change if the Fed gives out dovish signals and the RBI also follows suit.

WHAT IS DRIVING RELENTLESS FPI FLOWS INTO DEBT MARKETS?

In the current year, FPI flows in to debt have been the big revelation. Look at some of the absolutely stunning numbers. Debt was almost a marginal player in 2022 and in 2023. However, the picture has entirely changed in 2024 with FPI flows into debt dominating the FPI flows into equity by a fairly large margin. Here are some interesting numbers.

• In 2022, the FPIs were net sellers in debt, although not to the same extent as it was in equities. The total net selling in debt in 2022 was about 8.5% of the total FPI net selling in the calendar year 2022, with equities accounting for the balance 91.5% of the selling. That was the period when we had seen the massive sell-off in equities after inflation just went berserk since October 2021. It was almost March 2022, by the time Fed started acting and other central banks globally also followed suit.
• In 2023, the net FPI buying in debt was to the tune of ₹65,954 Crore. As a percentage of the total net flows from FPIs into India in 2023, debt inflows accounted for 27.82% of the total net FPI flows in the calendar year. This was the start of the FPI buying in Indian bonds ahead of the inclusion of Indian bonds into the global bond indices of Bloomberg and Financial Times UK.
• How has the picture changed in the calendar year 2024. In short, debt has dominated FPI flows in the year on a net basis. Till the close of the second week of September 2024, FPI flows into debt stood at ₹1,46,355 Crore or $17.55 Billion. That is more than twice the debt market FPI flows that we saw in the whole of 2023. In 2024, debt accounts for 67.4% of the total FPI flows in the calendar year.
• What explains the turnaround in debt flows in 2024? Of course, the inclusion in the index and the passive flows are a big factor. But, another factor is that FPIs are betting on Indian repo rates coming down, giving a boost to bond values. That expectation is driving a lot of FPI flows in 2024.

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; in the aftermath of the September FOMC. FPI flows may be volatile, but the undertone is positive.

MACRO FPI FLOW PICTURE UP TO SEPTEMBER 13, 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) #	22,707.04	5,155.29	27,862.33	25,145.07	53,007.40
Total for 2024 (₹ Crore)	10,708.65	60,039.23	70,747.88	1,46,355.10	2,17,102.98
For 2024 ($ Million)	1,288.03	7,195.05	8,483.08	17,552.36	26,035.44
# – Recent Data is up to September 13, 2024

Data Source: NSDL (Negative figures in brackets)

FPIs were decisive net buyers in the latest week to September 13, 2024, to the tune of $2,010 Million. That makes it about $6.71 Billion of infusion in the previous 4 weeks. One can take solace from the fact that post the election outcome, Indian equities have seen net FPI flows to the tune of more nearly $15 Billion; with an impressive contribution coming from FPI flows into debt also.

For calendar 2024 so far, FPIs were net buyers to the tune of $26,035 Million. Out of this figure, FPIs net bought equities worth $8,483 Million and were net buyers in debt worth $17,552 Million. For 2024, till date, net debt market inflows accounted for 67.4% of total net FPI flows into India. Year 2024 has been more about debt flows and less about equity flows. As of the close of September 13, 2024, the FPIs were net buyers in secondary market equities worth $1,288 Million, while buying in IPOs more than made up at $7,195 Million.
FPI SENTIMENTS – THE WEEK THAT WAS

For the latest week to September 13, 2024, FPIs underlined their position as net buyers to the tune of $2,010 Million. FPIs have now been net buyers for 4 weeks in a row, infusing nearly $6.70 Billion in just 4 weeks. Since Modi 3.0, the FPIs have infused nearly $15 Billion into Indian equities. Here is what drove FPI sentiments this week.

1. The last big data point ahead of the US FOMC meet on September 18, 2024 was the US consumer inflation data, which was announced last week. It flattered on the downside, coming in at 2.5% against the street expectation of 2.6%. With the CPI inflation and the PCE inflation in the US now close to 2.5%, it should give sufficient confidence for the Fed to go ahead with aggressive rate cuts. However, the core sector inflation was sticky at 3.2% and that could be worry for the policy makers in the US.
2. India CPI inflation came in at 3.65% for the month of August 2024. The inflation was expected to spike due to a lower base, but that was not the case. The food basket remained subdued and the core inflation was 10 bps higher at 3.4%. In fact, core inflation has bounced from 3.1% to 3.4% in the last 2 months indicating that the best of the supply chain normalization may be done and dusted. The big downward thrust came from oil inflation. However, rural inflation continued to be sharply higher than urban inflation and that raises doubts over whether the rebound in rural spending and rural demand can really happen. We have to wait and watch, but the low inflation is positive.
3. The week also saw the index of industrial production (IIP) growth announced for the month of July 2024. It came in at 4.84%, indicating positive tidings since the base was already higher by around 213 basis points. Also, the June 2024 IIP growth had been upgraded from 4.24% to 4.73%, raising the hopes of an upgrade for the July IIP too. But, more importantly, the cumulative IIP is stuck at around the 5.2% and that could be a trigger for the RBI to start cutting the repo rates. We have to wait and watch.
4. The price of Brent crude had cracked sharply in the week to below $70/bbl. The sharp fall came after recent reports by Citigroup and Bank of America hinting at Brent Crude prices dipping to around $60/bbl, or even lower. That led to rapid unwinding of positions in the oil futures market. With rising supplies from non-OPEC and weak demand from the US and China, oil prices have been under pressure. However, crude took support around $70/bbl as a number of countries used lower levels to fill up their oil reserves. For India, this should come as a big relief for the trade deficit and for rupee value.
5. The 10-year benchmark bond yields in India touched a 30-month low of 6.81% during the week, which was largely on expectations of a dovish tone by the Fed. That has also raised expectation that the RBI may start cutting rates when it meets in October. Also, Indian repo rates are 135 bps above the pre-COVID rate making a strong case for a rate cut. In addition, the real rates in India are also above 2%, against the median level of around 1%. A rate cut by the RBI would not only boost equity values, but also reduce the stress on Indian companies in terms of cost of funds.
6. The coming week will be almost like a truncated week with Monday being a clearing holiday and Tuesday likely to see major disruption in economic activity in Mumbai on account of Idol Immersions. The coming will see the IPOs of Arkade Developers and Northern Arc Capital opening, while the IPO of Western Carriers will close in the coming week. In addition, the IPOs of Bajaj Housing Finance, Tolin Tyres, Kross Ltd and PN Gadgil Jewellers will list in the coming week among the mainboard IPOs.

The action now shifts to the Fed meeting outcome on September 18, 2024. The action and the language will hold the key to FPI flows 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
19-Aug-24	1,196.49	1,196.49	142.51	142.51
20-Aug-24	-1,756.42	-559.93	-209.30	-66.79
21-Aug-24	4,034.96	3,475.03	481.61	414.82
22-Aug-24	-430.70	3,044.33	-51.32	363.50
23-Aug-24	1,852.13	4,896.46	220.60	584.10
26-Aug-24	3,882.05	8,778.51	462.84	1,046.94
27-Aug-24	969.41	9,747.92	115.61	1,162.55
28-Aug-24	4,794.61	14,542.53	571.18	1,733.73
29-Aug-24	-574.83	13,967.70	-65.25	1,668.48
30-Aug-24	14,526.64	28,494.34	1,731.63	3,400.11
02-Sep-24	1,503.96	29,998.30	179.32	3,579.43
03-Sep-24	5,759.81	35,758.11	686.71	4,266.14
04-Sep-24	3,035.79	38,793.90	361.61	4,627.75
05-Sep-24	1,585.93	40,379.83	188.87	4,816.62
06-Sep-24	-904.19	39,475.64	-107.67	4,708.95
09-Sep-24	1,942.90	41,418.54	231.49	4,940.44
10-Sep-24	1,134.37	42,552.91	135.14	5,075.58
11-Sep-24	2,962.44	45,515.35	352.78	5,428.36
12-Sep-24	2,869.62	48,384.97	341.82	5,770.18
13-Sep-24	7,971.70	56,356.67	949.19	6,719.37

Data Source: NSDL

FPIs sustained the net buying for fourth week in a row. In the latest week, the FPIs infused an impressive $2.01 Billion into Indian equities, over and above the $4.70 Billion infused in the previous 3 weeks. In the 3 months since the formation of the Modi 3.0 government, FPIs have infused close to $15 Billion into Indian equities. Here are key FPI data takeaways.

• In previous 7 rolling weeks, FPIs saw net inflow of $1,309 Million, $2,816 Million, $584 Million; net outflows of $(926) Million, $(1,479) Million, $(281) Million, and net inflows of $349 Million. In the latest week to September 13, 2024 net FPI equity inflows were an impressive $2,010 Million.
• If you look at the last 4 rolling weeks on a cumulative basis, total net FPI inflows into equities were to the tune ₹56,357 Crore or $6,719 Million. In fact, the last 11 trading sessions saw $5.05 Billion infused by FPIs into Indian equities.

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

TRIGGERS FOR FPI FLOWS IN COMING WEEKS?

The big news last week was the US inflation data and the Indian macro data points like consumer inflation and India IIP. The US jobs report was also on track and the low US inflation makes a case for Fed rate cuts. Going ahead, 3 factors will impact FPI flows.

• 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 for cues on monetary strategy.
• 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 due to trade pressures.
• The India trade data will also be a key data point for the FPIs next week, as that would set the tone for how the CAD is likely to evolve for the full fiscal year FY25.

FPI flows have turned into positive territory in the last 4 weeks. With $6.70 Billion infused into Indian equities in the last 4 weeks, the total equity infusion by FPIs since the Modi 3.0- government formation is getting closer to $15 Billion. Can the momentum continue? For now, it will depend on the FOMC statement issued by Jerome Powell on September 18, 2024.