TRADING AND INVESTING IN UNCERTAIN MARKETS
The markets have shown a lot of volatility in the recent past, with the latest week once again seeing a sharp spike in the VIX to above the 14 levels. There were several triggers. The global geopolitical situation continues to be fluid. While there appears to be a stalemate between Iran and Israel, it continues to pose a major risk for the traditional trade routes through the Red Sea. In the Indian context, the political uncertainty is also adding to the volatility as the country navigates through elections in one of the hottest summers ever. The million dollar question is what should traders and investors do in these kind of markets.
For traders, the message is simple. Try to play in the market with short stop losses and short profit target. When the VIX is above 14, you really cannot be staying too long in the trades. It is also a trigger for traders to use futures and options more imaginatively as a risk management mechanism. That would work best in these kind of markets. For the investors, though, not much really changes. They continue to play the long term India domestic market story. They also play the transition that is happening from a $3.5 Trillion economy to a $5 Trillion economy. The investment strategy in this market would continue to stock to asset allocation, keep your long term goals in view and look at domestically driven equities.
FED STATEMENT WAS ELOQUENT IN ITS SILENCE
When the Federal Reserve announced its policy statement on May 01, 2024, the thrust was quite clear. It was just too early to start cutting rates. The CME Fedwatch is now expecting the Fed to start rate cuts on or after September, but they do not see more than one rate cut in 2024. That is a far cry from the 3 rate cut assurance that Jerome Powell had given to the markets. What is surprising is that the Fed has still not retracted its statement on 3 rate cuts, but has cryptically messaged that it will take monetary policy meeting by meeting. One positive feature, that actually flattered the markets, was the Fed chair assurance that rate hikes were ruled out. That would give some reassurance to the markets, since some of the FOMC members were also hinting at a possible rate hike if inflation really went out of hand. At least, that possibility appears to have been eliminated for the time being.
MACRO FPI FLOW PICTURE UP TO MAY 03, 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) # | 1,109.65 | 46.37 | 1,156.02 | (1,927.10) | (771.08) |
Total for 2024 (₹ Crore) | (25,127.46) | 28,505.86 | 3,378.40 | 56,810.19 | 60,188.59 |
For 2024 ($ Million) | (2,997.28) | 3,428.79 | 431.51 | 6,850.49 | 7,282.03 |
# - Recent Data is up to May 03, 2024 |
Data Source: NSDL (Negative figures in brackets)
FPIs were net sellers for the third week in a row, although the tempo of selling has substantially come down after the sharp sell-off two weeks ago. For instance, the week to August 19, 2024 saw FPI outflows of $2.23 Billion amidst rising geopolitical risks. However, the week to April 26,2024 saw subdued FPI net selling of just about $126 Million in equities. In the latest week to May 03, 2024, the FPI selling has been just $146 Million. Needless to say, the secondary markets continued to see relentless selling while it was the IPO market that compensated. The coming week could be positive for the IPO market with 3 mainboard IPOs viz., Indegene Ltd, Aadhar Housing Finance, and TBO Tek hitting the IPO markets.
The week to May 03, 2024 saw FPIs turning net sellers in equity secondary markets and in debt markets, although the infusion into primary markets helped to an extent. For calendar 2024 overall, FPIs were net buyers to the tune of $7,282.03 Million. However, it is the outflows from debt in recent weeks that is more of a sentiment dampener, amidst the euphoria of index inclusion for bond markets. For 2024 till date, FPIs net bought equities worth $431.51 Million and were net buyers in debt to the tune of $6,850.49 Million. As of the close of May 03, 2024, the FPIs were still net sellers in secondary market equities worth $(2,997.28) Million, while the buying in IPOs compensated for that at $3,428.79 Million.
This is the third week in a row that FPI flows are under pressure. FPI outflows were a reaction to concerns over emerging market equities; amidst the uncertain situation in the Middle East and West Asia, its implications for oil prices, and the patently hawkish stance adopted by the US Federal Reserve. Equity selling in the last two weeks has been subdued and nowhere close to the $2.23 Billion of selling we saw in the week to April 19, 2024. The big news in the week was the bounce in the VIX, with the VIX bouncing back to above 14 levels, with most of the pressure coming on Friday. In the last 3 weeks, VIX fell from 15 levels to 10 levels and it has bounced back to where it all started. Volatility is a tough game.
FPI SENTIMENTS – THE WEEK THAT WAS
For the latest week to May 03, 2024, FPIs were net sellers to the tune of $145.71, after seeing net selling of $125.51 Million in the week to April 26, 2024. Here are 6 key data points that influenced FPI flows this week.
It may have been a volatile week, but the broad message from the Q4 results was that revenues were under pressure, although operating leverage still allowed the profits to grow.
DAILY FPI EQUITY FLOWS FOR LAST 4 ROLLING WEEKS
Here is the last 4 rolling weeks data on FPI flows as it shows us a time series moving average of FPI flows.
Date | FPI Flow (₹ Crore) | Cumulative flows | FPI Flow($ Million) | Cumulative flow |
08-Apr-24 | 1,915.09 | 1,915.09 | 229.61 | 229.61 |
09-Apr-24 | 0.00 | 1,915.09 | 0.00 | 229.61 |
10-Apr-24 | 8,526.56 | 10,441.65 | 1,023.38 | 1,252.99 |
11-Apr-24 | 0.00 | 10,441.65 | 0.00 | 1,252.99 |
12-Apr-24 | 3,230.38 | 13,672.03 | 388.15 | 1,641.14 |
15-Apr-24 | -7,937.77 | 5,734.26 | -952.09 | 689.05 |
16-Apr-24 | -3,233.48 | 2,500.78 | -387.51 | 301.54 |
17-Apr-24 | 0.00 | 2,500.78 | 0.00 | 301.54 |
18-Apr-24 | -3,264.73 | -763.95 | -390.99 | -89.45 |
19-Apr-24 | -4,163.15 | -4,927.10 | -498.48 | -587.93 |
22-Apr-24 | 772.77 | -4,154.33 | 92.52 | -495.41 |
23-Apr-24 | -2,619.00 | -6,773.33 | -313.98 | -809.39 |
24-Apr-24 | -3,458.12 | -10,231.45 | -414.76 | -1,224.15 |
25-Apr-24 | 4,227.19 | -6,004.26 | 507.47 | -716.68 |
26-Apr-24 | 26.94 | -5,977.32 | 3.24 | -713.44 |
29-Apr-24 | -2,372.84 | -8,350.16 | -284.72 | -998.16 |
30-Apr-24 | 5.53 | -8,344.63 | 0.66 | -997.50 |
01-May-24 | 0.00 | -8,344.63 | 0.00 | -997.50 |
02-May-24 | 1,851.02 | -6,493.61 | 221.63 | -775.87 |
03-May-24 | -695.00 | -7,188.61 | -83.28 | -859.15 |
Data Source: NSDL
FPIs have now been net sellers for 3 weeks in a row, although the last 2 weeks have only seen subdued selling. In the recent 3 weeks, FPIs have been net sellers of $146 Million, $126 Million, and $2,229 Million. However, prior to that in the week to April 12, 2024, FPIs were net buyers to the tune of $1,641 Million. Geopolitics in West Asia is surely taking its toll as is the tepid top line performance of Indian companies in the fourth quarter of FY24. The uncertainty in the market is evident from the spike in VIX. Here is a quick run-down.
TRIGGERS FOR FPI FLOWS IN COMING WEEKS?
There are some key triggers for FPI flows in the coming weeks to watch out for. The fiscal deficit update for FY24 is yet to be announced by the government. If it is at 5.8%-5.9% or better, then the FPIs would have reasons to celebrate the India story. The Fed stance almost looks clear, so the immediate triggers that the FPIs would look for in India would be the election outcome on June 04, 2024 and the passage of the full budget in July. That should give a lot more clarity to the FPIs about how to go about their India strategy.
The geopolitical risk continues to be a major roadblock, although its intensity appears to be abating. If oil prices do not surprise on the upside and if the VIX in the Indian markets returns to normal levels, It looks like better times for FPI flows in the coming weeks. However, a lot will depend on the election outcome and the trajectory provided by the new incumbent government.
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