Weekly Musings – FPI flows for week ended September 15, 2023

18 Sep 2023 , 08:33 AM

In the last 45 days, the sentiments appear to have shifted from optimism to ambivalence to scepticism. The numbers say it all. After infusing $17 billion into Indian equities between May and July 2023, the foreign portfolio investors (FPIs) saw flows sobering to just about $1.48 billion in August. Now, the August 2023, FPI flows of Rs12,262 crore or $1.48 billion was not bad in isolation, but it was surely small compared to the average net inflow of $5.5 billion from FPIs in the months of May, June, and July 2023. Things dipped further into negative in the September month. In the week to September 15 2023, the FPIs were Rs566 crore or just about $123 million. Now that is a very small quantum of selling, but it still shows the change in sentiments. For the month of September so far, FPIs have been net sellers to the tune of Rs4,768 crore in equities or $573 million.

To be fair, the FPI outflows of $573 million is not really substantial if you look at the backdrop of $18.5 billion infused into Indian equities between May and August 2023. In the latest week to September 15, 2023, the FPI outflows from equities were to the tune of $123 million, which is lower than the outflow of $658 million in the previous week. However, the 3 weeks prior to that had still seen net FPI inflows into equities to the tune of $278 million, $617 million, and $641 million respectively. FPIs have also been ambivalent as the trajectory of the US rates is still not too clear and hence a lot will predicate on the outcome of the Fed meeting on September 19, 2023. The CME Fedwatch is giving a mixed picture most of the India macro data points are out this week. On the domestic macros front, there are concerns over the India inflation numbers, but the next few months will give clarity on which way the inflation is headed. In the latest week, FPIs were net sellers for 3 out of the 5 trading days and that shows negative sentiments building up.

What triggered the FPI selling in the week to September 15, 2023

If the month of August 2023 was tepid compared to the robust flows of May, June, and July; then September is seeing FPI selling pressure. It may still be too premature to call it selling pressure as September has just seen outflows of $573 million. That is still very small compared to the FPI inflows of $18.5 billion between May and August 2023. The FPIs were net sellers for the second week in succession, but the positive takeaway is that the FPIs were net buyers in debt. Here were 4 of the key drivers for FPI outflows during the week.

• India inflation was the one overriding concern for the FPIs. For August, the inflation came down from 7.44% to 6.83%, but still remains well above the RBI outer comfort zone of 6%. That is making the FPIs relatively edgy. Also, the fuel inflation has just about started showing up and that could also accelerate the inflation reading, even if food inflation is brought under control. Above all, energy inflation has strong externalities and tends to seep into food inflation and core inflation indirectly. The redeeming feature for the week was the IIP for July 2023 coming at a robust 5.7%, led by manufacturing.

   

• There is a lot of uncertainty over the US plan of action on the monetary front. The intent of the FOMC is still hawkish, but the timetable is not. For the month of August 2023, the consumer inflation in the US spiked by 50 bps to 3.7%. There is a concern that the Fed may opt to hike rates by 25 bps in the September 19 meeting, instead of waiting till the November meeting. FOMC members have always preferred front-ending rate hikes and that does remain a concern for the FPIs.

   

• FPIs are also a little wary ahead of the September quarter results starting from early October. While the top line growth would still be robust, there are concerns that much of the commodity price gains globally may have peaked out. Also, the spike in food inflation is likely to rub off on quarterly numbers of most companies, either directly or indirectly. Amidst growth expectations, the manpower costs have also gone up sharply and that is also likely to put pressure on corporate bottom lines.

   

• Finally, there is the critical combination of oil prices and USDINR equations. Brent Crude crossed $94/bbl last week and that is likely to put a lot of macro pressure on India. The USDINR has been hovering over 83/$ and analysts believe it could have been a lot worse had it not been for the RBI intervention. Two global factors are adding to the pressure. US bond yields have touched 4.33% while the US dollar index (DXY) is now above a multi-month high of 105.40. Both these are likely to put pressure on the rupee.

If August was the taming of the FPI bull, then September has shown genuine concerns in the nature and colour of FPI flows. For now, the impact is not being felt as domestic flows are filling the gap with panache. As markets trend higher and volatility climbs, such smugness may not really work. That is the challenge at this juncture. 

Macro FPI flow picture up to September 15, 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 #	-4,305.43	-462.69	–4,768.12	1,799.92	-2,968.20
Total for 2023	1,08,325.42	22,193.07	1,30,518.49	26,176.59	1,56,695.08
# – 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, apart from the very short term perspective. The longer term big picture is still robust. A quick glance at the above table would tell you that inflows into equities in 2023 have more than offset the outflows in 2022. Till 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 Rs1.57 trillion into equity and debt combined till date in 2023. While there may be doubts about the short term view, the long term view still remains uplifting.

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 15, 2023.

Date	FPI Flow (Rs Crore)	Cumulative flows	FPI Flow($ billion)	Cumulative flow
21-Aug-23	574.85	574.85	69.19	69.19
22-Aug-23	-1,277.22	-702.37	-153.67	-84.48
23-Aug-23	-108.75	-811.12	-13.09	-97.57
24-Aug-23	901.63	90.51	108.73	11.16
25-Aug-23	2,205.79	2,296.30	267.20	278.36
28-Aug-23	-1,706.33	589.97	-206.45	71.91
29-Aug-23	2,476.01	3,065.98	299.71	371.62
30-Aug-23	792.77	3,858.75	95.92	467.54
31-Aug-23	9.86	3,868.61	1.19	468.73
01-Sep-23	1,258.56	5,127.17	152.23	620.96
04-Sep-23	1,778.00	6,905.17	215.09	836.05
05-Sep-23	-2,375.64	4,529.53	-287.13	548.92
06-Sep-23	-1,311.57	3,217.96	-158.13	390.79
07-Sep-23	-2,832.84	385.12	-340.94	49.85
08-Sep-23	-719.15	-334.03	-86.45	-36.60
11-Sep-23	-97.07	-431.10	-11.68	-48.28
12-Sep-23	1,466.70	1,035.60	176.96	128.68
13-Sep-23	-330.83	704.77	-39.87	88.81
14-Sep-23	-2,293.06	-1,588.29	-276.43	-187.62
15-Sep-23	688.78	-899.51	83.01	-104.61

Data Source: NSDL

The week to September 15, 2023 saw net FPI outflows of $68 million or Rs566 crore, really not much to worry about. That could be partially due to block selling by FPIs, but here is the bigger picture of intermediate FPI flows.

• In the previous 3 rolling weeks, FPI witnessed outflows at $(658) million, inflows of $343 million, and inflows of $278 million. The latest week saw net FPI outflows of $(68) million; with pressure coming from the secondary market and primary market selling.

   

• If you look at the last 4 rolling weeks on a cumulative basis, total net FPI outflows from Indian equities were to the tune of Rs988 crore or $105 million. This is the first time in the last 5 months that the rolling 4-month FPI flows have bene negative and shows how the FPI selling pressure has gradually gravitated in the last month and half.

What will drive FPI flows in the coming weeks?

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

• With the US consumer inflation coming in 50 bps higher at 3.7% for August, all eyes will be on the outcome of the Fed meeting on September 19, 2023. The CME Fedwatch still shows a lot of ambivalence, but the Fed outcome could lead to a sharp shift in flows. 

   

• Over the next few days, the focus would also be on some of the key high frequency data points in India like the core sector data, PMI manufacturing and PMI services. The high frequency data have been showing signs of pressure and they will hold the key.

   

• How the Nifty trades technically will also matter to the colour of FPI flows. In the last two weeks, the Nifty has rallied by over 800 points to close near the 20,200 levels with almost zero FPI support. That is likely to force the FPIs to jump into the bandwagon to avoid missing the bus. The big edge is that the VIX still remains very low, hinting at a buy-on-dips market. 

   

• Needless to say, FPIs will be closely tracking the crude oil prices and the USDINR equation. As a proxy to the USDINR, the FPIs would actually be taking a close look at US bond yields and the US Dollar Index (DXY). A stable rupee favours FPI flows since dollar returns are protected. Oil remains a concern due to its potential to import inflation.

In the last few months, the India trades of FPIs have focused more on the sectors benefiting from the revival of the capital cycle like power and capital goods. The next few weeks could be interesting in terms of the FPIs crystallize their view on Indian equities.