Weekly Musings – FPI flows for week ended September 27, 2024

30 Sep 2024 , 12:56 PM

HOW FPIS READ THE INDIAN MARKETS THIS WEEK

With the Fed rate cut done in the previous week, the week to September 27, 2024 was all about the announcement of the US GDP data and the US PC inflation data. Both were satisfactory overall, with GDP growth for Q2-2024 retained at 3.0% and the PCE inflation for August falling sharply by 30 bps to 2.2%. For the week, the FPIs infused $2.83 Billion into Indian equities, which is one of the best weekly flows in recent memory. However, the entire weekly flows were concentrated on just 2 days, with flows neutral in the remaining days. However, there are some important data points coming in the coming few weeks.

Firstly, the India current account deficit update for Q1 will be out on Monday, September 30, 2024. The CAD is expected to have intensified in the first quarter due to higher merchandise trade deficit and lower services trade surplus. On the last day of September, the India core sector growth data and the fiscal deficit update will also be provided. The other big data points in the coming weeks influencing FPI flows will be the US unemployment data for September and the minutes of the Fed meeting scheduled on October 09, 2024. But, what the FPIs will be really watching out for is the cues from the Q2 corporate results, that will start from the second week of October 2024.

FPI 2024 FLOWS FLATTER ON THE UPSIDE

In the latest week to September 27, 2024, the FPI infusion of $2.83 Billion was sharply higher than the infusion of $696 Million in the previous week. Prior to that, the 3 weeks had seen inflows of $2.01 Billion, $1.31 Billion, and $2.82 Billion respectively; taking the total infusion in the last 5 weeks to a whopping $9.70 Billion. One must also not lose sight of the fact that FPIs have now infused nearly $19.0 Billion in the last 110 days since the Modi 3.0 government took charge. That is surely a positive statement of faith, but the real story of 2024 likes in a slightly longer term perspective. Here is why.

If you compare 2024 with the calendar year 2023, then the results are quite flattering on an overall basis. For instance, the calendar year 2023 saw net FPI inflows of ₹2.37 Trillion, while the inflows in calendar 2024 are already at ₹2.56 Trillion in the first 9 months of the year. However, the break-up of this figure tells the story of how debt has dominated in the year 2024. If you look at the net flows into equity; it stood at ₹1.71 Trillion in the year 2023, while it is just ₹1.00 Trillion in the first 9 months of 2024. While FPI flows into IPO are better in 2024 than in 2023, it is in secondary market equity flows that 2024 is falling short of 2023. Let us also look at the picture of debt flows. In 2023, the net inflows from FPIs into debt was to the tune of ₹0.66 Trillion, while in the first 9 months of 2024, the inflows are already more than double at ₹1.56 Trillion. In short if net equity flows were 72.2% of total FPI flows in the year 2023, the ratio falls to just 39.2% in the first 9 months of 2024. Clearly, the combination of index inclusion and FAR bonds have given a big boost to FPI debt flows.

MACRO FPI FLOW PICTURE UP TO SEPTEMBER 27, 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) #	46,480.75	10,878.73	57,359.48	34,342.85	91,702.33
Total for 2024 (₹ Crore)	34,482.36	65,762.67	1,00,245.03	1,55,552.88	2,55,797.91
For 2024 ($ Million)	4,131.70	7,879.08	12,010.78	18,652.10	30,662.88
# – Recent Data is up to September 27, 2024

Data Source: NSDL (Negative figures in brackets)

FPIs were decisive net buyers in the latest week to September 27, 2024, to the tune of $2.83 Billion. That makes it about $9.7 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 $19 Billion; with impressive additional flows into debt also. For the year 2024 so far, the FPI flows into debt have dominated at 61% of the total net FPI flows, although this ratio has fallen quite sharply in recent weeks. The debt flow surge was 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 $30,663 Million. Out of this figure, FPIs net bought equities worth $12,011 Million and were net buyers in debt worth $18,652 Million. For 2024, till date, net debt market inflows accounted for 61% of total net FPI flows into India. Year 2024 has been more about debt flows and less about equity flows, which 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 well as anticipatory buying. As of the close of September 27, 2024, the FPIs were net buyers in secondary market equities worth $4,132 Million, while buying in IPOs more than made up at $7,879 Million.

FPI SENTIMENTS – THE WEEK THAT WAS

For the latest week to September 27, 2024, FPIs underlined their position as net buyers to the tune of $2.83 Billion. From a broader perspective, FPIs have infused $9.7 Billion in last 5 weeks and close to $19 Billion in the last 15 weeks since the NDA assumed charge for the third time in a row. Here is what drove FPI sentiments in the week.

1. There is big news on the IPO front. It looks like the IPO boom in digital and new-age stocks is back after a hiatus of more than 3 years. The year 2024 has already seen 6 major new age IPOs collecting more than ₹14,500 crore between them. FirstCry, Ola Electric, and Go Digit General Insurance were some of the prominent IPO names in the year. However, that may just be the tip of the iceberg with big guns like Swiggy and MobiKwik also setting the tone for their upcoming. Then there is the ₹10,000 crore IPO from NTPC Green, the renewable energy arm of NTPC and the largest India IPO of ₹25,200 crore from Hyundai India. It is surely a busy few months for the Indian IPO market, but the real good news is that the new age digital IPOs are back.
2. Meanwhile, the situation in the Middle East and West Asia is going from bad to worse. Israel has been fighting two relentless wars on two different fronts. Firstly, there is a war on Hamas, which is entrenched in the neighbouring Gaza strip and Palestine, which both Israel and the Arab world are laying claims to. But the bigger war is being fought by Israel against Lebanon, which is home to the dreaded Hezbollah. The Red Sea consignments continue to face attacks from the Houthi rebels of Yemen. Interestingly, the Hamas, Hezbollah and the Houthis are all backed by Iran. For now, Iran is content to be quiet and fight a proxy war, but the situation in the Middle East and West Asia is surely a tinderbox and can explode at short notice.
3. The market borrowing calendar of the central government for Q2-FY25 looks a lot more promising at just ₹6.61 Trillion. That is just about 47% of the full year target and is in sync with the 4.8% fiscal deficit for FY25. This also means that the government dose not plan to allow the borrowing calendar or the fiscal deficit to overshoot itself. A controlled borrowing environment is good news for FPIs as it means that fiscal prudence is being maintained and the interest rates and bond yields will not spike, giving more room for equities to outperform other asset classes as the valuations become more attractive with a lower weighted average cost of capital to discount future cash flows. This is exclusive of the ₹2.47 Trillion treasury bill borrowings, but includes the issue of green bonds.
4. The all-important final estimate of US Q2 GDP came out during the week. It has been held at 3.0%, the same level as evidenced in the second estimate. Additionally, the first quarter GDP growth was also upgraded from 1.4% to 1.6%. Despite this upgrade, the Q2-2024 GDP growth has nearly doubled over the first quarter. That raises the question if the fears of hard landing are really justified. That is something we have to find out, but for now the GDP growth in the US has got a thrust from goods and services.
5. The PCE inflation for August 2024 also came in during the week. Surprisingly, the PCE inflation for the month was 30 bps lower at 2.2%. That is just about 20 bps away from the eventual 2% inflation target of the Federal Reserve. In terms of the components of the PCE inflation basket, food inflation was marginally lower by 10 bps while core inflation on yoy basis was actually higher. However, thanks to the sharp fall in Brent Crude prices midst demand concerns; the energy inflation fell sharply into the negative, pulling down the headline PCE inflation also by 30 bps to 2.2%. This virtually reinforces the aggressive stance on rate cuts adopted by the Federal Reserve.
6. Banks may be gradually losing heft in equity market cap sweepstakes. Between September 2023 and September 2024, the weightage of the banks has come down from 32.0% to 27.7%. That is largely because the private banks have lagged. However, the shift has been more pronounced in favour of industrials as well as to the IP oriented industries like IT and Healthcare. These sectors have cornered most of the incremental market cap weight in the last one year.

A lot will now depend on how the second quarter results of Indian companies pan out in the next few weeks.

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
02-Sep-24	1,503.96	1,503.96	179.32	179.32
03-Sep-24	5,759.81	7,263.77	686.71	866.03
04-Sep-24	3,035.79	10,299.56	361.61	1,227.64
05-Sep-24	1,585.93	11,885.49	188.87	1,416.51
06-Sep-24	-904.19	10,981.30	-107.67	1,308.84
09-Sep-24	1,942.90	12,924.20	231.49	1,540.33
10-Sep-24	1,134.37	14,058.57	135.14	1,675.47
11-Sep-24	2,962.44	17,021.01	352.78	2,028.25
12-Sep-24	2,869.62	19,890.63	341.82	2,370.07
13-Sep-24	7,971.70	27,862.33	949.19	3,319.26
16-Sep-24	0.00	27,862.33	0.00	3,319.26
17-Sep-24	3,045.76	30,908.09	363.04	3,682.30
18-Sep-24	0.00	30,908.09	0.00	3,682.30
19-Sep-24	2,380.95	33,289.04	284.03	3,966.33
20-Sep-24	410.53	33,699.57	49.09	4,015.42
23-Sep-24	15,181.36	48,880.93	1,818.30	5,833.72
24-Sep-24	2,031.72	50,912.65	243.29	6,077.01
25-Sep-24	-1,454.09	49,458.56	-173.86	5,903.15
26-Sep-24	-636.66	48,821.90	-76.20	5,826.95
27-Sep-24	8,537.58	57,359.48	1,020.01	6,846.96

Data Source: NSDL

FPIs sustained the net buying for sixth week in a row. In the latest week, the FPIs infused just $2.83 Billion into Indian equities, over and above the $7.0 Billion infused in the previous 4 weeks. In the 15 weeks since the formation of the Modi 3.0 government, FPIs have infused close to $19 Billion into Indian equities. Here are key FPI data takeaways.

• In previous 7 rolling weeks, FPIs saw net inflow of $696 Million, $2,010 Million, $1,309 Million, $2,816 Million, $584 Million; net outflows of $(926) Million, and $(1,479) Million. In the latest week to September 27, 2024 net FPI equity inflows were an impressive $2,832 Million; which is one of the best inflows weeks in recent memory.
  
• If you look at the last 4 rolling weeks on a cumulative basis, total net FPI inflows into equities were to the tune ₹57,359 Crore or $6,847 Million. In the lates week, the entire $2.83 Billion actually came in just 2 trading sessions.

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

TRIGGERS FOR FPI FLOWS IN COMING WEEKS?

There are a number of big triggers for FPI flows in the coming week. Going ahead, 4 factors will impact FPI flows.

• The next week wills see the key India specific data points of Q1-FY24 current account deficit (CAD), which is likely to see merchandise trade pressures.
  
• Two more India data points in the coming week will be the core (infrastructure) sector growth and the update on the fiscal deficit as of end August 2024.
  
• One thing FPIs will be really watching is the second quarter results, which will start rolling out from the second week of October 2024.
  
• Finally, there are the two cues from the US markets in the coming week, which includes the unemployment figure for September 2024 and the minutes of the Fed meet to be announced on October 09, 2024.

FPI flows have turned decisively positive in the last 6 weeks. With $9.7 Billion infused into Indian equities in the last 5 weeks, the total equity infusion by FPIs since the Modi 3.0- government formation is getting closer to $19 Billion. For the rally to sustain, the data flows from India and the US must continue to be positive.