8 mins read . 04 Jan 2023
FPI flows have been largely discouraging since October 2021. In fact, between October 2021 and June 2022, FPIs sold close to $34 billion of equities due to concerns that global central banks would turn hawkish amidst rising inflation. The FPI selling of 2021 continued well up to June 2022. That was the period when the central banks in the US and in India were aggressively hiking rates. At that point, the big concern was that the aggression could eventually translate into an economic slowdown.
The concerns have not gone. As we stand today, there are several headwinds like rising COVID cases in China, ongoing war in Ukraine, rising input prices, falling operating margins, hawkishness of central banks etc. However, evidence from the US and India suggests that higher rates have not really dented growth. The US economy turned around to positive real growth in September 2022 quarter after contracting in the first 2 quarters of 2022.
The big story in India was the sharp turnaround in FPI flows in the year 2022. Between January and June 2022, FPIs sold equities worth Rs 2.17 trillion. However, between July and December 2022, FPIs infused Rs95,919 crore into equities. FPIs still ended 2022 with net equity selling of Rs1.21 trillion, but sharply mitigated in H2-2022.
The table below captures monthly FPI flow trends in equity and debt for Calendar 2022.
|Month||FPI - Equity||FPI - Debt||Net Flow||Cumulative Flow|
Data Source: NSDL (all figures are Rupees in crore)
The big story of 2022 was how the FPI flow pattern turned in the second half of the year. There was aggressive selling between January and June but the tide turned from July onwards. In H2-2022, September and October saw selling in equities by FPIs on a net basis, but the other four months were good enough to compensate.
The big story for 2022 was the turnaround in flows in the second half as concerns abated with the US also reporting a turnaround in growth. The good news for FPIs was that, despite the persistent rate hikes, real GDP growth has shown positive traction.
The table below gives a granular encapsulation of the daily flows into Indian equities in December 2022; both in rupee and dollar terms.
|FPI Flow Date||FPI Flows (Rs Crore)||Cumulative flows (Rs Crore)||FPI Flow ($ million)||Cumulative flow ($ million)|
Data Source: NSDL
The month of December 2022 closed with net FPI buying in equities to the tune of Rs11,119 crore or approximately $1.36 billion. In the second half, four out of six months have seen positive inflows into equities with the months of August 2022 and November 2022 accounting for bulk of the FPI inflows. The million dollar question now is; what happens in 2023 and what factors will drive the FPI flows in year 2023?
Broadly, there will be a mix of 5 factors that will drive the direction and colour of FPI flows in the year 2023.