Weekly Musings – FPI flows for week ended October 11, 2024

14 Oct 2024 , 07:01 AM

FPI SELLING – GEOPOLITICAL RISK IS STILL INTACT

If you just thought that the geopolitical risk has gone away, think again. It has, probably, taken a back seat, but the Middle East and West Asia continue to be as tense as ever. Reports suggest that even as the stand-off continues, Israel continues to pound targets in the Hamas and Hezbollah. While Israel may not openly attack Iran, these attacks on Iran-funded groups is embarrassing enough. It is reported that Israel may strike Iran’s nuclear installations or its oil installations in the near future. Either ways, it is likely to substantially increase the risk premium and trigger a rush of money to risk-off havens in the developed world. That would only further accentuate the FPI selling in the coming weeks. Also, the apprehension is that if Iran blockades the Straits of Hormuz, then it could have collateral impact on trade, oil prices and also the flow of investments to EMs. FPIs will be in focus.

FPI SELLING – IT IS SELL INDIA AND BUY CHINA

It is not often that you have heard this story of “Sell India, Buy China” in the last few years since the pandemic. It was always buy India. However, something appears to be gradually changing. For example, FPIs are less optimistic of India continuing to grow above 7%. The recent contraction reported in the core sector growth and the IIP growth would only serve to substantiate such perceptions. Also, the typical FPI hot money, that is allocated based on relative valuations, suddenly finds China a lot more salivating as a momentum market. After all, China has also promised a big stimulus package and that has already turned the short term momentum firmly in favour of China. This long-China and short-India appears to be the flavour of the global investors and FPI selling numbers appear to corroborate that.

FPI SELLING – DATA WAS A PROBLEM TOO

To be fair, several data points have been less than favourable for India in the recent weeks. For August, the core sector output contracted by -1.77% and the August IIP also contracted by -0.14%. That could be an outcome of the government relaxing on capex spending, but it could also mean that the 7.2% GDP growth projected by the RBI is starting to look rather far-fetched to most FPIs. Secondly, there were expectations that the RBI would also turn dovish after the 50 bps rate cut by the Fed. However, in the latest monetary policy the RBI MPC has not given any indications of a rate cut, despite changing the monetary stance to Neutral. All these data points have not gone down too well with the FPIs.

FPI FLOWS MUGGED BY REALITY FOR SECOND WEEK IN A ROW

The pressure of FPI outflows sustained  for the second week in a row. After FPIs net sold equities to the tune of $(3.12) Billion in the previous week; they sold an additional $(3.76) Billion of equities in the latest week to October 11, 2024. If you look at the 8 trading sessions since the start of October 2024; FPIs have been net sellers of $7 Billion, which is averaging nearly $1 Billion of net selling in equities per day in the month of October. The last two weeks of selling came after 6  weeks of persistent buying by the FPIs, but the intensity of the FPI selling in this week does raise some serious questions of whether a recover in FPI flows can be seen in the near future?

In the 5 weeks to September 27, 2024; FPIs had infused $2.83 Billion, $696 Million, $2.01 Billion, $1.31 Billion, and $2.82 Billion respectively; taking the total infusion in these 5 weeks to a whopping $9.70 Billion. However, in the recent two weeks, FPIs have already taken out $7 Billion from India equities, almost neutralizing all the good work of the previous 5 weeks. However, if you take a slightly longer term picture since the formation of the Modi 3.0 government, FPIs are still net buyers in Indian equities to the tune of $9 Billion. However, the concern is not so much on the structural India story as it is on the momentum story. For now, that FPI momentum appears to be against Indian equities.

MACRO FPI FLOW PICTURE UP TO OCTOBER 11, 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)	46,552.40	11,171.24	57,723.64	35,813.99	93,537.63
Oct-2024 (₹ Crore) #	(62,616.18)	3,905.28	(58,710.90)	34.08	(58,676.82)
Total for 2024 (₹ Crore)	(28,062.17)	69,960.46	41,898.29	1,57,058.10	1,98,956.39
For 2024 ($ Million)	(3,321.18)	8,380.01	5,058.83	18,833.10	23,891.93
# – Recent Data is up to October 11, 2024

Data Source: NSDL (Negative figures in brackets)

If you compare 2024 with the calendar year 2023, then the results are quite flattering on an overall basis; although it must be said that October has played a sort of spoilsport. For instance, the calendar year 2023 saw net FPI inflows of ₹2.37 Trillion, while the inflows in calendar 2024 had already touched ₹2.35 Trillion by the end of September. However, in the last two weeks that number has deteriorated and come down to just ₹1.99 Trillion. However, the break-up also 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, but has fallen to ₹0.42 Trillion in year 2024 till date.

While FPI flows into IPO are better in 2024 than in 2023, it is in secondary market equity flows that 2024 is falling grossly 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 debt inflows have already touched ₹1.57 Trillion in year 2024 till date. In short if net equity flows were 72.2% of total FPI flows in the year 2023, the ratio falls to just 21.06% in the year 2024 till date. Clearly, the combination of index inclusion and FAR bonds have given a big boost to FPI debt flows; and at nearly 79% of the total net FPI inflows in 2024, it is debt that is playing the saviour in bad times.

FPI SENTIMENTS – THE WEEK THAT WAS

For the latest week to October 11, 2024, FPIs decisively turned net sellers to the tune of $(3.74) Billion. From a broader perspective, FPIs have been net sellers in equities to the tune of $7 Billion in the first 8 trading sessions of October. Here is what drove FPI sentiments in the week.

• Geopolitical risk was still a major issue, but took a slight backseat as both, Iran and Israel are rationally weighing their options. Also, Israel would not want to go into a full-fledged war without the full backing of the US. That may have to wait till the presidential elections later this year. Israel is, for the time being, content to launch targeted attacks on the leaders of Hamas and Hezbollah. However, West Asia remains a tinderbox for global markets and the geopolitical situation remains utterly volatile.
• The RBI announced its monetary policy for October during the week. While the repo rates were held steady at 6.5%, the RBI did take a small step of shifting the stance of the monetary policy from “gradual withdrawal of accommodation” to a “Neutral” stance. That was logical considering the vastly improved liquidity conditions. it could be a precursor to rate cuts by the RBI, but right now economists are divided on whether the first rate cut by the RBI will come in December 2024 or in February 2025.
• US Fed published the minutes of its September FOMC meeting on October 09, 2024. The one thing that emanated from the minutes was that the vote for a 50 bps rate cut was a lot tougher than it may appear based on the votes. Michelle Bowman may have been the sole voice of dissent, but there were enough members who felt that 25 bps would have been enough and that 50 bps was too risky. In the aftermath of the minutes, the CME Fedwatch toned down its trajectory to rate cuts of about 175 bps by end of 2025.
• US consumer inflation for September was also announced during the week, and turned in 10 bps lower at 2.4%. While the consumer inflation has broadly moved in tandem with PCE inflation, it is the composition of this inflation that is a matter of concern. For example, food inflation is up 20 bps and core inflation is also higher by 10 bps. The downward thrust to inflation has come entirely from energy deflation, which contracted -6.8% in September. However, it is questionable if this can be sustained amidst rising geopolitical uncertainty and rising Brent Crude prices.
• After a gap of nearly 22 months, the India Index of Industrial Production (IIP) contracted by -0.14%. While manufacturing IIP was in the positive; both mining IIP and electricity IIP showed a sharp contraction. What is also worrying is that this IIP contraction comes in the same month of August when the core sector had also contracted. It indicates that the slowdown in capex growth and the tepid capex offtake this year appears to have slowed down the core sector and IIP growth. That remains a matter of concern.
• FPI flows have slowed in the recent weeks to prepare the liquidity for the slew of mega IPOs coming up. This week, there is the ₹27,200 Crore IPO of Hyundai Motors India opening, where the institutional anchor portion alone is going to be worth $1 billion. Then, there are other big IPOs of Swiggy India, NTPC Green, and AFCONS; which are slated to hit the IPO market soon. The surge in big-ticket IPOs is likely to starve the secondary market of institutional funds.
• FPIs will be closely watching the management shift at the Tata group after the demise of Ratan Tata. Noel Tata of Trent and a half brother of Ratan Tata, has already taken the reins of the Tata Trusts and will clearly play the lead role in driving the business. FPIs would be waiting to hear about his future plans for the group businesses.

The next big trigger for the markets will be coming from the second quarter company results and inflation numbers and the Kharif data for the year. West Asia remains the immediate concern for FPIs investing in India.

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
16-Sep-24	0.00	0.00	0.00	0.00
17-Sep-24	3,045.76	3,045.76	363.04	363.04
18-Sep-24	0.00	3,045.76	0.00	363.04
19-Sep-24	2,380.95	5,426.71	284.03	647.07
20-Sep-24	410.53	5,837.24	49.09	696.16
23-Sep-24	15,181.36	21,018.60	1,818.30	2,514.46
24-Sep-24	2,031.72	23,050.32	243.29	2,757.75
25-Sep-24	-1,454.09	21,596.23	-173.86	2,583.89
26-Sep-24	-636.66	20,959.57	-76.20	2,507.69
27-Sep-24	8,537.58	29,497.15	1,020.01	3,527.70
30-Sep-24	936.50	30,433.65	111.93	3,639.63
01-Oct-24	-6,426.84	24,006.81	-767.03	2,872.60
02-Oct-24	0.00	24,006.81	0.00	2,872.60
03-Oct-24	-5,208.58	18,798.23	-621.44	2,251.16
04-Oct-24	-15,506.75	3,291.48	-1,847.15	404.01
07-Oct-24	-9,645.10	-6,353.62	-1,148.69	-744.68
08-Oct-24	-8,126.70	-14,480.32	-967.79	-1,712.47
09-Oct-24	-5,380.70	-19,861.02	-641.02	-2,353.49
10-Oct-24	-3,679.26	-23,540.28	-438.21	-2,791.70
11-Oct-24	-4,736.97	-28,277.25	-564.14	-3,355.84

Data Source: NSDL

FPIs Turned net sellers after for 2 weeks in a row; after 6 consecutive weeks of net buying in Indian equities. The latest week saw FPIs net selling Indian equities to the tune of $(3.76) Billion after being net sellers of $(3.12) Billion in the previous week. In the 6 weeks prior to that, FPIs had infused $9.7 billion into Indian equities. The two weeks of heavy selling by FPIs appears to have changed the underlying tone of FPI action.

• In previous 7 rolling weeks, FPIs saw net outflows of $(3,124) Million; and net inflows of $2,832 Million, $696 Million, $2,010 Million, $1,309 Million, $2,816 Million, and $584 Million. In the latest week to October 11, 2024 net FPI equity outflows were to the tune of $(3,760) Million; which is two consecutive weeks of sharp selling in equities.
• If you look at the last 4 rolling weeks on a cumulative basis, total net FPI outflows from equities were to the tune ₹(28,244) Crore or $(3,356) Million; largely spoilt by the sell-off in the last 2 weeks. In the recent week, selling was rampant in all 5 trading days.

Rising geopolitical risk remains a big overhang on markets.

TRIGGERS FOR FPI FLOWS IN COMING WEEKS?

There are a number of big triggers for FPI flows in the coming week. Here is a quick dekko at some of the key triggers.

• Q2FY25 company results will be the key data input for FPIs this week, as they expect flat top line but better than expected net profit growth.
• India will announce its consumer inflation number for the week, and already the markets are expecting a spike due to the low base effect.
• The coming week will also see the trade data being announced, where widening trade deficit has been a major overhang on the CAD estimates for FY25.
• The two major events, which will set the course for next week, would be the mega Hyundai Motors India IPO and the upcoming results of Reliance Industries.

After 2 weeks of FPI selling to the tune of $7 Billion, some amount of jitteriness is par for the course. It remains to be seen if FPIs can trigger positive net flows in the coming week.