Here are quick FPI numbers

The FPI withdrawal of almost $9 billion since September has been the worst for the markets since March 2020, when the recovery began in markets. The four month streak of FPI withdrawals from equities was last seen in early 2017 and not after that. Above all, the sharp sell-off is raising some basic questions about the sustainability of the rally in stock market indices. But the real story has been in the month of January 2022. 

How bad has Jan-22 been? 

 

 

If you put the FPI data in perspective, it is January that has been responsible for most of the outflows. Just look at the FPI numbers. Till 28-Jan, the FPIs had already sold Rs.28,259 crore worth of equities in the month. That is nearly half the equity outflows we saw at the peak of the pandemic month in early 2020. One reason was the total absence of IPOs in January, which resulted in tepid FPI flows. Domestic investors have been on the buying side, but their influence on the markets is still limited. In most cases, the selling in equities is getting magnified by the actions of the FPIs in the futures and options market. If you add that up, the overall impact is huge. 

Why are FPIs selling in India? 

 

 

The frenetic FPI selling is not surprising considering that macros are under strain in last few months. The Fed has turned ultra-hawkish, input inflation is spiraling out of control, Indian valuations are in question and many other Asian markets are looking more attractive. But, the big story is the virtual drying up of IPOs. Between August and November, a spate of digital IPOs ensured that the FPIs were still interested in India. Then came the fiasco of digital stocks correcting sharply and the rest is history. With a number of digital IPOs being put off, it looks like it would be some time before FPIs start returning to Indian equities.

What could trigger a shift?

In a way, a lot will predicate on the Union Budget that is going to be put out on 01-Feb. what exactly will the FPIs be expecting? Firstly, they still seek a Union Budget that is reformist and bold. That means; reforms and spending has to continue. Secondly, FPIs also expect that the Indian economy is able to pull itself out of the COVID slowdown and grow well above pre-COVID levels. The catalytic role that the Budget can play in this regard will hold the key. Above all, the FPIs will also expect a semblance of sanity in fiscal deficit. Fiscal deficit of 6.8% is just not sustainable. More than anything else, the Budget must provide a clear time-table for lowering of fiscal deficit. That will be a big attraction!