FPIs infuse $2 billion in the first five days of November

The month of November has started off on a positive note in terms of FPI flows. Ironically, the pace of FPI flows have picked despite the Fed hiking rates by another 75 bps and refusing to relent till inflation came down meaningfully. What, possibly, appealed to the FPIs is that the Fed has indicated that the rate hikes may gradually sober from these levels and the rate hikes would be much smaller going ahead. That is small consolation amidst so much of hawkishness but it is consolation nevertheless. In October, infused close to $800 million in the first half and took that money out in the second half. November should be better.

Here is a quick preview of the FPI flows in the first week of November 2022.

Data Source: NSDL

The above table captures the FPI flows into equities for the first 5 trading sessions wherein over $2 billion has been infused by these FPIs. That is a lot of positive flows into equity at a time when the markets had struggled in the previous 2 months. This almost reminiscent of August when the FPIs had infused $6.44 billion into Indian equities. 

Will the FPI magic continue in the days ahead?

Broadly, the feeling in the market is that the Foreign Portfolio Investor (FPI) flows would remain largely volatile in the near term due to a plethora of headwinds like the monetary policy tightening, geo-political risks in China and Ukraine, rising inflation, risk of recession etc. The month of October saw absolutely flat flows from FPIs but November has started with a bang getting Rs16,878 crore or over $2 billion in the first five days of November. The last time FPIs had infused funds heavily was in August 2022, when $6.44 billion came in.

However, the broad macro picture still does not look too encouraging. Since the start of the year 2022, FPIs have still been net sellers to the tune of Rs1.53 trillion. That is because for 9 months in succession between October 2021 and June 2022, the FPIs net sold close to $34 billion of Indian equities in one of the most sustained selling by FPIs in Indian equities in recent memory. Even during the peak of the 2020 pandemic, the FPI selling was intense for just about 3 to 4 months after which it had come back to normal levels.

What exactly are FPIs betting on now? Apparently, the foreign investors are infusing funds into India in the hope that the aggressive rate hike cycle may be ending or close to its fag end. In the last few months, sone of the macro-economic data in the US like the third quarter growth estimates and inflation in the last few months have been a lot more palatable. Even WPI inflation in India has fallen sharply indicating that the worst may be almost over for now. Hence it is expected that things should only get better from here.

The US Fed statement also played a part, despite the 75 bps rate hike by the Fed and its strongly worded hawkish message. The sense that markets are getting is that the Fed hawkishness may have peaked out in November and from December there should be a tapering of rate hike pressures. This has resulted in risk-on investment globally as FPIs are willing to take on risk at this point. Interestingly, FPIs are buying in India even when the US bond yields are rising, dollar is hardening and the US yield curve is inverting. 

The optimistic last word perhaps is that India is slightly better placed due to its domestic demand and its consumption driven economy. It is hard to say if that is a real advantage but it surely gives room for comfort to investors who are worried about some of the most basic challenges like global headwinds, falling trade, weak global demand etc. The strong domestic Indian market provides a hedge to investors. Also, most of the high frequency indicators like the GST collections, e-way bills and the PMI numbers have been indicating at an economy in robust motion.