Weekly Musings – FPI flows for week ended July 05, 2024

8 Jul 2024 , 09:23 AM

FPIS NET EQUITY BUYERS FOR FOURTH SUCCESSIVE WEEK

After infusing $1.41 Billion, $1.83 Billion, and $1.72 Billion in the three previous weeks, the FPI flows continued in the latest week to July 05, 2024. However, the inflows were relatively subdued at $953 Million for the week, although that was amidst 2 days of FPI selling during the week. For the last 4 weeks since the new government has been formed at the centre, the FPI flows have been to the tune of $5.91 Billion. That is not exactly a deluge, but the are showing a decisive turn in FPI sentiments towards investing in India. The formation of the Modi 3.0 government was initially met with some scepticism in the markets as it was a coalition government, where the ruling BJP was well short of the half-way mark. However, coalitions are nothing new and India had seen coalition governments for 25 years between 1989 and 2014. It is only the in last two terms that we have seen majority governments.

Post the new government taking shape, the prime minister and the finance minister have made the right noises about the reforms being on track: and that has helped turn the sentiments for FPIs. Valuations may still be a concern, but the indication is that these FPI flows should turn into a deluge, once the US Fed cuts its benchmark rates. In the last few weeks (even prior to the election outcome), several macro pointers have been very favourable. GDP growth for FY24 came in at 8.2%, the fiscal deficit was pruned further in FY24 to 5.6% of GDP, and the current account deficit (CAD) showed a surplus in Q4 and the deficit was restricted to just 0.7% of GDP in FY24. All in all, the FPIs have a lot to cheer about India. A Fed rate cut, supported by the RBI dropping rates, should be the next big trigger.

FED MINUTES COULD HAVE DONE A LOT MORE

The one major disappointment in the week would be that the Fed could have actually done a lot more. However, if the latest FOMC minutes published during the week showed that the Fed continues to be ambivalent. It is not that rate cuts are not justified. It is just that the Fed can afford to continue with the current situation for more time, and that is exactly what the Fed is doing. This time around, even the data was ripe for a rate cut. Overall, the inflation had been structurally contained and the much-feared hard landing had been averted. On a shorter time scale, the Q1 GDP growth for the US economy came in at 1.3% compared to 4.9% in Q3-FY23 and 3.4% in Q4-FY24. That shows the US economy slowing in sync with the 2% inflation level expected. The labour market is now more in balance with wage hikes under control. Above all, the PCE inflation was now at 2.6%, with energy inflation the only challenge. Being the undisputed leader in world oil production, the US has less to worry on that front. However, despite these apparent advantages, the Fed opted for status quo. Now the markets are waiting for September, but June FOMC was an opportunity missed.

MACRO FPI FLOW PICTURE UP TO JULY 05, 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
Jun-2024 (₹ Crore) #	9,108.91	(1,146.66)	7,962.25	6,166.24	14,128.49
Total for 2024 (₹ Crore)	(23,396.52)	34,559.36	11,162.84	92,771.90	1,03,934.74
For 2024 ($ Million)	(2,784.73)	4,155.07	1,370.34	11,162.75	12,533.09
# – Recent Data is up to July 05, 2024

Data Source: NSDL (Negative figures in brackets)

FPIs remained aggressive net buyers in the week to July 05, 2024 at $953 Million; after being net buyers to the tune of $1,724 Million, $1,825 Million, and $1,405 Million in the previous 3 weeks. For calendar 2024 so far, FPIs were net buyers to the tune of $12,533.09 Million. Out of this figure, FPIs net bought equities worth $1,370.34 Million and were net buyers in debt to the tune of $11,162.75 Million. For 2024, till date, net debt market inflows accounted for 89.1% of the total net FPI flows into India. In short, year 2024 has been more about debt flows and less about equity flows. As of the close of July 05, 2024, the FPIs were still net sellers in secondary market equities worth $(2,784.73) Million, while the buying in IPOs more than compensated for that at $4,155.07 Million.

In the latest week to July 05, 2024, FPIs were again net buyers worth $953 Million. This is positive for the fourth week in a row, albeit subdued. The net FPI inflows into equity in the last 3 weeks were $1.72 Billion, $1.83 Billion, and $1.41 Billion. Prio to the new government formation, the FPIs were persistently on the sell side, when it came to Indian equities. Clearly, sentiments have shifted sharply in the last 4 weeks post the government formation. Apparently, the FPIs are now waiting for some positive news flows on Fed rate cuts.

FPI SENTIMENTS – THE WEEK THAT WAS

For the latest week to July 05, 2024, FPIs were net buyers to the tune of $953 Million. For 4 weeks in a row, the FPIs have been net buyers in equity; infusing $5.91 Billion in the process. Here is what drove FPI sentiments this week.

• The week saw SEBI moving against Hindenburg Research in the 2023 short selling saga on Adani group shares. The regulator has issued a show-cause notice to Hindenburg Research. While Hindenburg had made serious allegations against the Adani group on cross holdings and corporate governance, they could not really substantiate these claims. Also, Hindenburg has admitted it short sold the stocks ahead of the report, which is violation of Section 11 of the Act. Hindenburg may have dismissed these allegations, but SEBI may have multiple levers this time around.
• The Federal Open Markets Committee (FOMC) published the minutes of the June Fed meet during the week. The minutes continued to hint that the data was not sufficient to give the FOMC members the confidence to cut rates. The Fed expects more evidence that the inflation was moving towards 2%, although it is not too clear what that evidence would be. Now, the CME Fedwatch is betting on the first rate cut to happen in September and one more rate cut in December; but more aggressive rate cuts in 2025.
• Brent Crude touched a high of $87.75/bbl during the week before sobering to close the week below the $87/bbl. However, this was the highest level in the last 4 weeks. There were several triggers for oil prices during the week. Firstly, the US gasoline demand continued to be very strong and there is no relenting on that front. Secondly, the US API reserves of oil saw a much larger drawdown during the week that expected. That is usually a bullish signal for oil. Above all, it is now increasingly evident that Russia will cut its crude supply later this year, which is likely to accentuate the deficit in oil markets. Short sentiments continue to be bullish on the oil front.
• The week saw another sharp rally in the stock markets in India. The Sensex crossed the 80,000 mark and the rally was largely led by IT stocks as traders and investors rushed into IT stocks as a hedge against the falling rupee. In terms of thematic indices, Defence delivered 13.7% returns in the week and has delivered an incredible 170% in the last one year. But more important was the trend in individual market cap accretion. Now, there are 101 stocks on the BSE with market cap in excess of $1 Trillion and the numbers are growing. While the likes of Shree Cements and Adani Total Gas may have dropped out, there are a host of new entrants to this club including Mazagon Docks, RVNL, Cummins India, Indus Towers, Solar Industries, Vodafone Idea etc.
• It looks like the government is not too keen on pursuing its disinvestment program very aggressively. This fiscal year FY25, the government can afford to go easy as the RBI has paid a bumper dividend of ₹2.11 Trillion for the year. This is likely to take the estimate of RBI dividend and bank dividends combined; to nearly 2.5 times the interim budget estimates. Tax flows are robust and that is likely to continue this year based on advance tax signals. But above all, the way PSU stocks have rallied in the market, the government is apparently convinced that disinvestment is not the only way to extract value out of the PSU. Creating a competitive business strategy actually works much better.
• It has been a mixed week for HDFC Bank, the most valuable bank in India and the third most valuable stock on the NSE. While HDFC Bank has seen a visible slowdown in its performance in the June quarter, there are also reports about HDFC selling some of its loan portfolios to reduce its exposure in some areas and improve its credit deposit ratio. But the big news is that the FPI holdings in HDFC Bank has now fallen to 54.83%, which his below the MSCI trigger of 55.5% to trigger FPI flows. That would logically mean that HDFC Bank could see its weight in the MSCI Emerging Markets Index double and accordingly the allocations to the bank by passive funds and ETFs would also grow.

It was a relatively quiet week for data flows, but the coming week will see some key data points in India like mutual fund flows, CPI inflation and IIP growth. That could be interesting.

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
10-Jun-24	5,355.83	5,355.83	641.99	641.99
11-Jun-24	2,867.87	8,223.70	343.49	985.48
12-Jun-24	57.02	8,280.72	6.83	992.31
13-Jun-24	679.33	8,960.05	81.30	1,073.61
14-Jun-24	2,770.42	11,730.47	331.60	1,405.21
17-Jun-24	0.00	11,730.47	0.00	1,405.21
18-Jun-24	3,234.51	14,964.98	387.15	1,792.36
19-Jun-24	1,576.35	16,541.33	188.82	1,981.18
20-Jun-24	9,175.54	25,716.87	1,099.85	3,081.03
21-Jun-24	1,247.64	26,964.51	149.38	3,230.41
24-Jun-24	1,797.66	28,762.17	215.07	3,445.48
25-Jun-24	860.42	29,622.59	103.03	3,548.51
26-Jun-24	2,464.98	32,087.57	295.47	3,843.98
27-Jun-24	1,513.23	33,600.80	181.13	4,025.11
28-Jun-24	7,757.97	41,358.77	929.22	4,954.33
01-Jul-24	1,553.37	42,912.14	186.14	5,140.47
02-Jul-24	-494.08	42,418.06	-59.24	5,081.23
03-Jul-24	-2,507.09	39,910.97	-300.20	4,781.03
04-Jul-24	3,898.51	43,809.48	466.70	5,247.73
05-Jul-24	5,511.54	49,321.02	660.05	5,907.78

Data Source: NSDL

FPIs were net buyers for the fourth week in a row, with the political uncertainty coming to an end and the VIX stabilizing. Here are some key FPI data takeaways.

• In previous 5 rolling weeks, FPIs had seen net inflows of $1.724 Million, $1,825 Million, $1,405 Million, net outflows of $1,768 Million, and net outflows of $424 Million. The latest week to July 05, 2024 saw net FPI inflows of $953 Million into equities.
• If you look at the last 4 rolling weeks on a cumulative basis, total net FPI inflows into equities were at ₹49,321 Crore or $5,908 Million. This number turned positive for equities only two weeks ago, after a long gap. FPIs remained net buyers in debt.

TRIGGERS FOR FPI FLOWS IN COMING WEEKS?

While the broad focus of the FPIs would be on the full budget, the other big data point of interest would be the corporate results for the first quarter; which will start for the blue chips from this week. But the real story that the FPIs will be looking for is whether the government continues its reformist approach in the July budget too. The Fed language on future rates trajectory will matter too.