Weekly Musings – FPI flows for week ended September 20, 2024

24 Sep 2024 , 02:59 PM

HOW FPIS READ THE INDIAN MARKETS THIS WEEK

For the week to September 20, 2024, the big even was the FOMC meet, which cut the repo rates by 50 bps. That was more than what the markets had anticipated. For the week, the FPIs infused $696 Million into Indian equities, which is much lower than the average flows of the last 3 weeks. However, it must be remembered that this was a week in which FPI reporting was done only in 3 days. Hence, expectations need to be adjusted accordingly.

In terms of the Fed rate cut, the good news for FPIs is that now the world would move towards a more comfortable liquidity regime, something that helps FPI flows. Secondly, there is now the expectation building up that the RBI will also follow suit and cut rates like the US Fed. After all, the RBI would not want to risk monetary divergence anyways. The other big even in the week was the merchandise trade deficit widening to $29.7 Billion raising concerns that the current account deficit for FY25 will be much higher than in FY24.

WILL THE FPI FLOWS CONTINUE FOR NOW?

The FPI infusion into Indian equities of $696 Million in the latest week was sharply lower than the FPI infusion of $2.01 Billion, $1.31 Billion, and $2.82 Billion respectively in the 3 weeks prior to the latest week. However, one must not lose sight of the fact that FPIs have now infused close to $7.0 Billion into Indian equities in the last 4 weeks and $16.0 Billion in the last 100 days since the Modi 3.0 government took charge. However, the FPIs will closely monitoring other parameters in coming weeks that have a bearing on the India story.

The first thing that the FPIs will monitor closely is the current account deficit for Q1FY25 to be announced towards the end of the week. Key US data points are also expected this week. The final estimate of Q2 GDP growth for the US economy will also be put out this week and that is likely to be closer to 3%, which is likely to dispel any concerns about a slowdown in the US economy. The US Bureau of Economic Analysis (BEA) will also announce the PCE inflation for the month of August 2024, which will provide an insight on whether the Fed will continue to treat its rather aggressively dovish path, when it comes to interest rates.

MACRO FPI FLOW PICTURE UP TO SEPTEMBER 20, 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) #	26,011.69	7,687.88	33,699.57	29,299.94	62,999.51
Total for 2024 (₹ Crore)	14,013.30	62,571.82	76,585.12	1,50,509.97	2,27,095.09
For 2024 ($ Million)	1,681.99	7,497.25	9,179.24	18,048.01	27,227.25
# – Recent Data is up to September 20, 2024

Data Source: NSDL (Negative figures in brackets)

FPIs were decisive net buyers in the latest week to September 20, 2024, to the tune of $696 Million. That makes it about $7.5 Billion of infusion in the previous 5 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 $16 Billion; with an impressive contribution coming from FPI flows into debt also. For the year 2024 so far, the FPI flows into debt have dominated and are nearly twice the net equity flows from foreign portfolio investors. That has been largely triggered by the inclusion of Indian government bonds in the JP Morgan bond index.

For calendar 2024 so far, FPIs were net buyers to the tune of $27,227 Million. Out of this figure, FPIs net bought equities worth $9,179 Million and were net buyers in debt worth $18,048 Million. For 2024, till date, net debt market inflows accounted for 66.3% of total net FPI flows into India. Year 2024 has been more about debt flows and less about equity flows., but that can be largely attributed to the inclusion of Indian bonds into the JP Morgan global bond indices, something that has triggered a lot of passive debt flows into India. As of the close of September 20, 2024, the FPIs were net buyers in secondary market equities worth $1,682 Million, while buying in IPOs more than made up at $7,497 Million.

FPI SENTIMENTS – THE WEEK THAT WAS

For the latest week to September 20, 2024, FPIs underlined their position as net buyers to the tune of $696 Million. This may look small, but this was a truncated week with just 3 FPI reporting days, so the action was limited. Also, from a broader perspective, FPIs have infused $7 Billion in last 4 weeks and $16 Billion in the last 14 weeks since the NDA assumed charge for the third time in a row. Here is what drove FPI sentiments in the week.

1. The big data point in the week was the announcement of the Fed monetary policy. As expected, the Fed cut rates, although the 50 bps cut was bigger than expected. In addition, the Fed has also guided for another 50 bps of rate cuts in the current year. The rate cut was on the cards after the unemployment numbers had red-flagged economic slowdown risks for 2 months in a row. The Fed thought it right to call an end to the upcycle and turn dovish on rates. That was largely helped by concerns over growth (also called hard landing) as well as the comfort of sharply lower inflation.
2. Along with Fed policy statement the FOMC members also released the quarterly update to their projections of unemployment, inflation, GDP growth, and interest rate trajectory for the next 4 years as well as for the long term. There was a sharp change between the June projection and the September projection on key parameters. On the GDP growth front, there was not much of change. However, on unemployment the 2024 level of unemployment has been upped by 40 bps to 4.40%. The PCE inflation estimate for 2024 was lowered by 30 bps to 2.30%. As a result, there is a lot of front-ending of rate cuts that is likely to happen in the immediate future. The long term projections are pencilling in 100 bps rate cut by end of 2024, a total of 200 bps by end of 2025 and 250 bps by middle of the calendar year 2026. That is a lot more aggressive that previously stated.
3. For the first time in the last 19 years, a Fed governor put up a dissent note objecting to the 50 bps rate cut. A known hawk, Michelle Bowman voted against the Fed decision to cut rates by 50 bps and suggested that 25 bps rate cut should have been good enough. According to Bowman, the 50 bps rate cut gives two wrong messages to the market. Firstly, it gives a message that the growth situation is desperate, which is not the case. Also, this gives a feeling that the Fed has won its battle over inflation, but that would also be too premature to start celebrating.
4. The India WPI inflation for August 2024 came in sharply lower at 1.31%. It was 2.04% in July 2024 and 3.43% in June 2024. In the last 2 months, the WPI inflation is down by a full 212 basis points from the peak levels, which is a good portent for the cost of funds of Indian corporates. The fall in WPI inflation was most pronounced in the food basket, primary basket, and the energy basket. However, the core WPI inflation remained on the higher side. The WPI inflation not only acts as a lead indicator of retail CPI inflation but also is directly related to the cost of funds of Indian corporates.
5. The week also saw the merchandise trade deficit for the month of August 2024 spike to $29.7 Billion, the highest level in the last 11 months. In October last year, the merchandise trade deficit had scaled to a life-time high of above $31 Billion. The spike in deficit can be attributed to a rise in imports and flat exports. However, within the import basket, the big villain of the piece was gold, which touched peak import levels of $10 Billion. Also, the services trade surplus was grossly insufficient and the effective overall trade deficit stood at $14.66 Billion, hinting at CAD coming under pressure in FY25, after a rather benign year in FY24.
6. India reported net direct tax collections for the first five and half months of FY24; a robust 16.1% higher at ₹9.95 Trillion. While the income tax collections grew at over 19% yoy, the corporate taxes grew at over 10% on a yoy basis. More importantly, the securities transaction tax (STT) has realised close to ₹26,100 Crore, in the first half of FY25. The numbers show a good pick up on advance tax meaning that economic activity is also robust and income levels are rising. That is good news for the economy as a whole, since that is what the high frequency indicators are also evincing.
7. Bonus shares to be credited on T+3 day going head. Currently, the bonus shares are only credited after a period of 15 days. That number gets crunched to just 3 days now. That way, investors do not face too much of opportunity loss. Quick relief to the investors as they can churn their money more efficiently and not lose out on opportunities. This is another investor friendly measure like T+1 settlements, and T+3 IPO listing; all of them being advances in the right direction.

The action now shifts to the current account deficit in India, and the global update on what the US will announce on the Q2-GDP front and the PCE inflation front.

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
26-Aug-24	3,882.05	3,882.05	462.84	462.84
27-Aug-24	969.41	4,851.46	115.61	578.45
28-Aug-24	4,794.61	9,646.07	571.18	1,149.63
29-Aug-24	-574.83	9,071.24	-65.25	1,084.38
30-Aug-24	14,526.64	23,597.88	1,731.63	2,816.01
02-Sep-24	1,503.96	25,101.84	179.32	2,995.33
03-Sep-24	5,759.81	30,861.65	686.71	3,682.04
04-Sep-24	3,035.79	33,897.44	361.61	4,043.65
05-Sep-24	1,585.93	35,483.37	188.87	4,232.52
06-Sep-24	-904.19	34,579.18	-107.67	4,124.85
09-Sep-24	1,942.90	36,522.08	231.49	4,356.34
10-Sep-24	1,134.37	37,656.45	135.14	4,491.48
11-Sep-24	2,962.44	40,618.89	352.78	4,844.26
12-Sep-24	2,869.62	43,488.51	341.82	5,186.08
13-Sep-24	7,971.70	51,460.21	949.19	6,135.27
16-Sep-24	0.00	51,460.21	0.00	6,135.27
17-Sep-24	3,045.76	54,505.97	363.04	6,498.31
18-Sep-24	0.00	54,505.97	0.00	6,498.31
19-Sep-24	2,380.95	56,886.92	284.03	6,782.34
20-Sep-24	410.53	57,297.45	49.09	6,831.43

Data Source: NSDL

FPIs sustained the net buying for fifth week in a row. In the latest week, the FPIs infused just $696 Million into Indian equities, over and above the $6.7 Billion infused in the previous 4 weeks. In the 3 months since the formation of the Modi 3.0 government, FPIs have infused close to $16 Billion into Indian equities. Here are key FPI data takeaways.

• In previous 7 rolling weeks, FPIs saw net inflow of $2,010 Million, $1,309 Million, $2,816 Million, $584 Million; net outflows of $(926) Million, $(1,479) Million, and $(281) Million. In the latest week to September 20, 2024 net FPI equity inflows were an impressive $696 Million; which may look small in size, but this comes in a truncated week.
• If you look at the last 4 rolling weeks on a cumulative basis, total net FPI inflows into equities were to the tune ₹57,297 Crore or $6,831 Million. In fact, the last 14 trading sessions saw $15.0 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 Fed policy statement, which is done and dusted. The Fed has not only cut interest rates, but has also given a very optimistic guidance of another 50 basis points of rate cuts in the year 2024. Going ahead, 3 factors will impact FPI flows.

• The two big key data points in the coming week will be the PCE inflation and the US GDP announcement. That will set the tone for more rate cuts this year.
• During the week, the RBI will also announce the current account deficit (CAD) for the first quarter and it will be re-examined in the light of the rise in trade deficit in Aug-24.
• One thing FPIs will be really watching is the second quarter results, which will start rolling out from the second week of October 2024, starting with the IT sector. The pressure of higher input costs will be the key deciding factor.

FPI flows have turned into positive territory in the last 5 weeks. With $7.50 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 $16 Billion. Can the momentum continue? For now, it will depend on how the domestic and the global macros pan out.