Weekly Musings – FPI flows for week ended June 28, 2024

1 Jul 2024 , 10:44 AM

FPIS NET EQUITY BUYERS FOR THIRD SUCCESSIVE WEEK

After infusing $1.41 Billion and $1.83 Billion in the previous two weeks into Indian equities, the foreign portfolio investors (FPIs) were once again net buyer to the tune of $1.72 Billion in the latest week to June 28, 2024. That is a good $4.96 Billion infused into Indian equities in the last three weeks since the Modi 3.0 government took oath of office. The formation of the NDA government (albeit a coalition government) has not only brought down the VIX or the volatility index to normal levels, but has also inspired confidence in the FPIs. It is interesting how much stability can change things. Just last month, the markets were tanking sharply and the PSU stocks were being sold off. The fear on the street was that a coalition government would put an end to the reforms process. The BJP did fall well short of the 272-mark, but still remains the dominant force in Indian politics with 240 seats.

A lot will depend on the tone and the language of the government between now and the full budget. It is now evident that the full budget will be presented around the end of July, so it gives enough time to the government to accommodate some of the demands of the coalition partners. Having said that, it is unlikely that the government may attempt any drastic changes in the full budget. Instead, the government is likely to allow the macroeconomic story of GDP, low fiscal deficit, and low CAD to play out in the current year and then make a much bigger splash in the February 2025 Union Budget. For now, the macros have been supportive and in the latest week, there was another booster coming from the current account.

INDIA REPORTS CURRENT ACCOUNT SURPLUS IN Q4FY24

The current account deficit for the full year FY24 was expected to be around 1% or lower based on the latest trade data published by the Ministry of Commerce. However, when the RBI announced the current account deficit numbers for FY24, there were two major surprises. Firstly, for the fourth quarter ended March 2024, the RBI reported a current account surplus of $5.7 Billion or 0.6% of the GDP. That was much beyond even the wildest estimate. Secondly, the full year FY24 current account deficit came in sharply lower at $23.2 Billion or 0.7% of the GDP. In short, the fourth quarter CAS and the full year FY24 CAD, were positive surprises. But, how did this surplus come about in a normal year.

India had recently reported three quarterly current account surpluses, but there were all during the pandemic period. The last current account surplus reported by India in a normal quarter was nearly 20 years back. How did this come about. On the merchandise trade deficit front, there was relief in the form of lower goods imports as well as the gains of cheaper Russian oil. That led to the narrowing of the merchandise trade deficit on a yoy basis. The services surplus was higher this year compared to the previous year, despite the pressures of a global slowdown and the Red Sea crisis. However, the real kicker came from the spike in remittances from expatriate Indians, who are reposing faith in the India story. The better than expected current account position makes a case for a possible rating upgrade for India, as well as better FDI and FPI flows in the current financial year.

MACRO FPI FLOW PICTURE UP TO JUNE 28, 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	15192.90	41,757.44
Total for 2024 (₹ Crore)	(32,505.43)	35,706.02	3,200.59	86,605.66	89,806.25
For 2024 ($ Million)	(3,875.52)	4,292.41	416.89	10,423.99	10,840.88
# – Recent Data is up to June 28, 2024

Data Source: NSDL (Negative figures in brackets)

FPIs remained aggressive net buyers in the week to June 28, 2024 at $1,724 Million after being net buyers of $1,825 Million, and $1,405 Million in the previous two weeks. For calendar 2024 so far, FPIs were net buyers to the tune of $10,840.88 Million. For 2024 till date, FPIs net bought equities worth $(416.89 Million and were net buyers in debt to the tune of $10,423.99.20 Million. For the first half of 2024, net debt market inflows accounted for 96.2% of the total net FPI flows into India. That is a narrative we often miss, in the obsession about the equity story. As of the close of June 28, 2024, the FPIs were still net sellers in secondary market equities worth $(3,875.52) Million, while the buying in IPOs partially compensated for that at $4,292.41 Million.

In the latest week to June 28, 2024, FPIs were again net buyers worth $1.72 Billion. In the previous two weeks, FPIs net bought equities worth $1.83 Billion and $1.41 Billion. In the 5 weeks prior to that; FPIs were net sellers of $1.77 Billion, net sellers of $424 Million, net buyers of $744 Million, net sellers of $1.34 Billion, and net sellers of $2.18 Billion. Clearly, the sentiments have shifted sharply in the last 3 weeks post the government formation. It now remains to be seen, how the FPIs react to the positive data flows on the current account front as well as the other data flows like GDP, fiscal deficit etc.

FPI SENTIMENTS – THE WEEK THAT WAS

For the latest week to June 28, 2024, FPIs were net buyers to the tune of $1,724 Million. For 3 weeks in a row, the FPIs have been net buyers in equity; infusing $4.96 Billion in the process. Here is what drove FPI sentiments this week.

• The RBI published the current account deficit numbers for the fourth quarter ended March 2024 and also for the full fiscal year FY24. The fourth quarter reported a surprising current account surplus of 5.7 Billion or 0.6% of GDP; while for the full year, the current account deficit stood at $23.2 Billion or just 0.7% of GDP. The current account situation shows a comfortable scenario, thanks to the lower merchandise deficit, robust services growth, and higher remittances into India.
• The core sector growth for May 2024 came in at 6.3%. This is lower than the revised figure for the previous month, but this robust core sector has come in spite of a higher base. Within the core sector basket, the positive triggers came from coal production, electricity, steel, and cement. All these have strong externalities and that is good news for the growth multiplier. Oil production, fertilizers and cement reported negative core sector growth. However, some of these are likely to bounce back, now that the political uncertainty is well and truly over.
• Like there was a CAD surprise in the month, there was also a fiscal deficit surprise in the month. For the month of May 2024, India reported a fiscal surplus of ₹1.50 Trillion. However, this must be taken with a pinch of salt as this includes the RBI dividend largesse of ₹2.11 Trillion for the previous financial year. That was fully accounted for in the month of May. Hence, for May 2024, India showed a fiscal surplus and a revenue surplus. The fiscal deficit utilization has come down from 12.5% as of April to just 3% as of May, but as we said, this has to be taken with a pinch of salt. However, the good news is that India is on target for 5.1% fiscal deficit of GDP in FY25, or even better.
• The US Bureau of Economic Analysis (BEA) announced the third and final estimate of GDP for the first quarter ended March 2024. Compared to the second estimate of 1.3%, the final estimate of GDP growth for Q1-2024 was slightly upped by 10 bps. The good thing is that this upgrade has come from growth in nominal GDP and not from lower inflation. However, that is not the real good news. The Fed always wanted that the GDP growth should taper after the US economy reported 4.9% and 3.4% in the third and fourth quarter of 2023. Fed was of the view that high GDP growth rates were not in sync with the Fed intent of 2% inflation. Now, this lower GDP growth, should impel the US Federal Reserve to take up the first rate cut soon.
• The other major US data point during the week was the PCE (personal consumption expenditure) inflation for the month of May. This is the inflation metrics that the Fed actually uses to take a call on inflation. The PCE inflation was led lower by core inflation and food inflation as it tapered by 10 bps to 2.6%. However, the inflation rate is still about 60 bps away from the Fed target. However, this time the Fed has lower PCE inflation and combined with lower than expected GDP growth. The setting is perfect for the Fed to cut rates. The rate cuts could happen as expected in September; or the Fed may even surprise with a pre-emptive rate cut in its next meeting on July 31, 2024.
• With cement companies looking to invest close to ₹1.50 Trillion in capacity enhancement in the next few years, this sector is likely to be the focus of attention. In a recent deal, Ultratech Cements has picked up a significant stake in south based India Cements. This will give Ultratech a quick leap towards its long term target of over 200 Million tonnes per annum (MTPA) of capacity. With big capacity additions expected, this is the space where most of the action could be seen.

There were other positive news flows too. The RBI Financial Stability Report (FSR) has underlined the sharp improvement in the asset quality, capital adequacy and resilience to stress of Indian banks. Also, big IPOs are back as Emcure hits the Indian IPO markets with its ₹1,952 Crore IPO. News flows were certainly positive in this week.

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
03-Jun-24	2,177.66	2,177.66	261.42	261.42
04-Jun-24	6,847.12	9,024.78	824.29	1,085.71
05-Jun-24	-12,243.91	-3,219.13	-1,466.30	-380.59
06-Jun-24	-4,804.39	-8,023.52	-576.14	-956.73
07-Jun-24	-6,770.71	-14,794.23	-811.20	-1,767.93
10-Jun-24	5,355.83	-9,438.40	641.99	-1,125.94
11-Jun-24	2,867.87	-6,570.53	343.49	-782.45
12-Jun-24	57.02	-6,513.51	6.83	-775.62
13-Jun-24	679.33	-5,834.18	81.30	-694.32
14-Jun-24	2,770.42	-3,063.76	331.60	-362.72
17-Jun-24	0.00	-3,063.76	0.00	-362.72
18-Jun-24	3,234.51	170.75	387.15	24.43
19-Jun-24	1,576.35	1,747.10	188.82	213.25
20-Jun-24	9,175.54	10,922.64	1,099.85	1,313.10
21-Jun-24	1,247.64	12,170.28	149.38	1,462.48
24-Jun-24	1,797.66	13,967.94	215.07	1,677.55
25-Jun-24	860.42	14,828.36	103.03	1,780.58
26-Jun-24	2,464.98	17,293.34	295.47	2,076.05
27-Jun-24	1,513.23	18,806.57	181.13	2,257.18
28-Jun-24	7,757.97	26,564.54	929.22	3,186.40

Data Source: NSDL

FPIs were again net buyers this week, 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 $1,825 Million, $1,405 Million, net outflows of $1,768 Million, $424 Million, and net inflows of $744 Million. The latest week to June 28, 2024 saw net FPI inflows of $1,724 Million into equities.
• If you look at the last 4 rolling weeks on a cumulative basis, total net FPI inflows into equities were at ₹26,565 Crore or $3,186 Million. This number turned positive for equities only in the previous week, after a long gap. FPIs remained net buyers in debt.

TRIGGERS FOR FPI FLOWS IN COMING WEEKS?

While the immediate 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. That exercise will start from the second week of July. But the real story that the FPIs will be looking for is whether the government continues its reformist approach in the July budget too. That confidence could make a big difference to FPI flows in the coming weeks.