Weekly Musings – FPI flows for week ended March 01, 2024

4 Mar 2024 , 07:01 AM

FPIS ARE GRADUALLY RETURN AS BUYERS?

In is said that “a few swallows, do not a summer make” meaning you cannot take a short period data and extrapolate it as a long term trend. However, it would be appropriate to say that FPIs may be finally back as buyers in Indian equities after a gap of more than 2 months. The weekly data showed FPIs as net buyers in equities for the second consecutive, although they continue to gorge on debt. Of course, if you look at the overall figure of 2024, it is still the IPO market that has brough in FPI money, while they have been sellers in the secondary markets. However, look at the weekly numbers of FPI equity flows. In the current week to March 01, 2024, the FPIs were net buyers in equities to the tune of $743 Million. In the 5 weeks prior to the current week, the FPIs were net buyers of $404 Million, net sellers of $84 Million, net sellers of $618 Million, net buyers for $126 Million, and net sellers of $1,706 Million, It is not just that FPIs have been net buyers for 2 weeks in a row, but even the intensity of selling by FPIs is not visible in the last 4 weeks. That is good news.

FPIS ARE SURELY IMPRESSED BY THE GDP DATA

If there was one piece of data that must have truly impressed the FPIs, it must have been the India Q3 GDP data. There are several reasons it was gratifying. Ahead of the Q3 GDP growth announcement, the consensus estimate was at around 6.7% with the most optimistic estimate pegging the GDP growth for Q3 at 7.2%. In reality, the GDP growth for Q3 came in at an incredible 8.4%, ahead of the wildest optimism of any analyst or economist. It was not just the third quarter GDP that was impressive. The GDP growth for the full year FY24 was projected at 7.6%. That is nearly 30 bps ahead of the MOSPI’s earlier estimates and a full 60 bps ahead of the RBI estimates. 

Now, the good news is that even this number may be conservative. The GDP growth for the first 3 quarters of FY24 have been above 8%. That means; for full year growth at 7.6%, the Q4 growth should be as low as 5.9%. That looks impractical when the momentum is so strong. In effect, we may see full year GDP growth also at closer to the 8% mark, which can be a game changer for FPIs. It can also expedite the move towards the $5 Trillion economy.

MACRO FPI FLOW PICTURE UP TO MARCH 01, 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)	4,181.55	19.76	4,201.31	(418.34)	3,782.97
Total for 2024 (₹ Crore)	(27,877.06)	7,873.70	(20,003.36)	49,0069.82	29,006.46
For 2024 ($ Million)	(3,352.51)	948.61	(2,403.90)	5,902.90	3,499.00
# – Recent Data is up to March 01, 2024

Data Source: NSDL (Negative figures in brackets)

As of March 01, 2024, the FPIs consolidated their position as net buyers in the year 2024 across equity and debt combined. For calendar 2024 overall, the FPIs were net buyers to the tune of $3,499.00 Million. However, that is more because the debt inflows have more than offset equity outflows. For 2024 till date, FPIs net sold equities worth $2,403.90 Million but were net buyers in debt to the tune of $5,902.90 Million. Of course, these are early days for 2024 and we will need more data points. However, there are 2 things that emerge. Firstly, FPIs shifting between equity and debt is a signal that they are still bullish on the idea of investing in India, and are just allocating more funds to debt.  Secondly, the domestic heft of mutual funds, LIC and the retail investors is so decisive today; that FPIs flows have become one of the factors; rather than the sole factor determining the course of the Indian markets.

FPI SENTIMENTS – THE WEEK THAT WAS

For the latest week to March 01, 2024, FPI inflows showed signs of picking up at $743 Million of net inflows into equities. This marks the second successive week of positive FPI flows into equities. More importantly, debt flows continued to be positive leaving FPIs net buyers overall in February and for calendar 2024. Here are the 6 key data points that influenced FPI action in the week to March 01, 2024.

1. The bid data in the week was the GDP data for Q3, which virtually provide to be the game change for the markets as a whole. The Q3 GDP came in sharply higher than expected at 8.4%, while the street was expecting about 6.7% growth and the best of optimists were expecting about 7.2%. This growth was led by industry and mining, while agriculture continued to be the lag factor. Regarding contact intensive sector like trade, hotels, banking and construction, the growth was positive but the momentum of growth was surely slowing as the post pandemic bounce had gradually tapered in last one year.

    

2. Along with the third quarter GDP, the MOSPI also announced the second estimate of full year GDP for the Indian economy. At 7.6%, the full year GDP growth for FY24 looks fairly impressive, but it could still be too conservative. The GDP has grown at over 8% in the first three quarters, so the fourth quarter growth assumption of 5.9% looks too conservative. Markets are betting that if the fourth quarter growth is normalized, then full year GDP growth should be closer to 8%, another icing on the cake for FPIs.

    

3. The third major data point during the week was the core sector update for January 2024. At 3.6%, the core sector growth did look optically lower and could be attributed to the slowdown in government spending to help maintain the fiscal targets for FY24. However, there are two factors to be noted here. Firstly, the base was fairly high, so this fall in core sector growth could be temporary, at best. Secondly, if one looks at the revision to core sector data for December 2023, it was upgrade by nearly 106 basis points. So, probability of an upward revision for January 2024 data also remains high.

    

4. During the week, the Controller General of Accounts (CGA) also put out the January update for the fiscal deficit data. As of the close of January 2024, the fiscal deficit stood at 63.6% of the full year fiscal deficit target. Even assuming that the last 2 months tend to be high on fiscal deficit gap utilization, India may still comfortably settle below the 5.8% of GDP target for FY24. That will also make the glide path of fiscal deficit to GDP ratio for FY25 at 5.1% a lot easier and also smoother.

    

5. In global data flows, the FPIs must have been closely watching the US second estimate of Q4 GDP data. At 3.2%, the GDP growth for the fourth quarter was just about 10 bps lower than the first estimate. The final estimate is awaited towards the end of March. However, based on the current data flows, it looks like the US would end the year with GDP growth of 2.5% or higher. One thing that underlines is that the hard landing risk may have been largely avoided by the US economy. That would offer a lot of solace to the Indian policymakers in terms of its total trade volumes and technology demand.

    

6. Finally, we come to the all important PCE (personal consumption expenditure) inflation data announced by the US BEA (Bureau of Economic Analysis) for the month of January 2024. The PCE inflation tapered lower by 20 bps to 2.40%, now just about 40 bps short of the eventual target of 2%. One pain point is that the services inflation continues to be sticky, but as governor Chris Waller had said in recent speeches, “The Fed is in no hurry to cut the rates.” That could be an overhang.

Despite the positive flows on the GDP front and the fiscal deficit being rather well managed, the FPIs are likely to be concerned about the emerging political equations. Indian political situation has been known to be awfully fickle in the past and the high level of VIX indicates that the market could still be a sell-on-rises market. For now, FPIs are likely to stay cautious.

DAILY FPI EQUITY FLOWS FOR LAST 4 ROLLING WEEKS

Here we look at 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 flow
05-Feb-24	228.48	228.48	27.58	27.58
06-Feb-24	762.88	991.36	91.88	119.46
07-Feb-24	-472.77	518.59	-56.91	62.55
08-Feb-24	-1,601.32	-1,082.73	-192.99	-130.44
08-Feb-24	-4,044.84	-5,127.57	-487.47	-617.91
12-Feb-24	330.32	-4,797.25	39.80	-578.11
13-Feb-24	220.37	-4,576.88	26.56	-551.55
14-Feb-24	233.61	-4,343.27	28.14	-523.41
15-Feb-24	-2,628.26	-6,971.53	-316.33	-839.74
16-Feb-24	1,143.05	-5,828.48	137.70	-702.04
19-Feb-24	0.00	-5,828.48	0.00	-702.04
20-Feb-24	172.68	-5,655.80	20.79	-681.25
21-Feb-24	2,973.50	-2,682.30	358.39	-322.86
22-Feb-24	393.71	-2,288.59	47.50	-275.36
23-Feb-24	-188.04	-2,476.63	-22.67	-298.03
26-Feb-24	1,551.85	-924.78	187.23	-110.80
27-Feb-24	-256.36	-1,181.14	-30.93	-141.73
28-Feb-24	2,055.97	874.83	248.03	106.30
29-Feb-24	-1,381.74	-506.91	-167.49	-61.19
01-Mar-24	4,201.31	3,694.40	506.64	445.45

Data Source: NSDL

The week to March 01, 2024 saw FPI inflows of $743 Million, the second successive week of meaningful positive flows into Indian equities. Here is a quick run-down.

• In last previous 5 rolling weeks, FPIs had seen net inflows of $404 Million, net outflows of $84 Million, net outflows of $618 Million, net inflows of $126 Million, and net outflows of $1,706 Million. The latest week to March 01, 2024 saw net FPI inflows into equities to the tune of $743 Million, which was a rather encouraging trend, especially if you consider the elevated levels of VIX in the market.

   

• If you look at the last 4 rolling weeks on a cumulative basis, total net FPI inflows into equities finally turned positive at ₹3,694 Crore or $445 Million. The rolling 4-week flows finally turned into positive territory after being in the negative for more than 9 weeks in a row. That is a good signal.

One clear trend emerging from the FPI flow story is the perceptible shift from equity towards debt. That is logical asset allocation ahead of Indian debt inclusion in JPM index.

WHAT WILL DRIVE FPI FLOWS IN COMING WEEKS?

There will be 3 key drivers of FPI flows in the coming weeks.

• There is likely to be a lag effect of the GDP data as most FPIs would have allowed the implications of the sharply higher GDP estimates to sink in. The GDP data was announced on Thursday and the impact was visible in terms of FPI flows on Friday. However, the lag effect is likely to last much longer as implications are clearer.

   

• The Fed chair, Jerome Powell will testify before the Senate Banking Committee, where he is likely to expound the highlights of the half yearly monetary policy. Also, Powell is expected to give some guidance on the monetary policy trajectory for the next 6 months as well as guidance on how the Fed proposes to cut the interest rates in the US.

   

• One factor that will benefit the FPI flows in the coming week is the hope that the SEBI will implement the reduced compliance and disclosure requirements for FPIs without any evidenced promoter linkages. That will make things a lot easier for the FPIs.

One quick takeaway from the FPI story for the week to March 01, 2024 is that; the inclusion of Indian debt into the JP Morgan Bond indices is triggering a lot of FPI flows into bonds. However, it also looks like the FPI attitude towards equities is recovering much faster than expected, especially with all the positive data flows!