Foreign portfolio investors (FPIs) have withdrawn a substantial ₹85,790 crore (approximately $10.2 billion) from Indian equities this month, driven by Chinese market stimulus measures, appealing stock valuations abroad, and high domestic equity prices. October is shaping up to be the worst month for foreign fund outflows on record, surpassing the previous high of ₹61,973 crore withdrawn in March 2020.
This latest wave of selling follows a significant investment of ₹57,724 crore in September 2024, marking a shift after FPIs had consistently purchased equities since June, despite earlier withdrawals of ₹34,252 crore in April and May. Overall, FPIs have been net buyers in 2024, apart from January, April, and May, according to data from depositories.
Looking forward, Himanshu Srivastava, Associate Director at Morningstar Investment Research India, noted that global factors like geopolitical developments and interest rate changes will be crucial in influencing foreign investment trends in Indian equities. Domestically, FPIs will also monitor key indicators such as inflation, corporate earnings, and festive season demand to evaluate market opportunities.
Between October 1 and 25, FPIs recorded net withdrawals of ₹85,790 crore, which negatively impacted market sentiment, causing the NSE’s benchmark index, Nifty, to drop by 8% from its peak. VK Vijayakumar, Chief Investment Strategist at Geojit Financial Services, indicated that the ongoing selling trend shows no signs of reversal, largely due to the appeal of lower valuations in China compared to India’s high prices.
This month’s outflows were exacerbated by geopolitical tensions and changing global economic conditions, according to Akhil Puri, Partner at Forvis Mazars in India. Increased concerns about geopolitical stability and recent events in China have led foreign investors to adopt a more cautious approach, reallocating funds to safer markets. Piyush Mehta, CIO at Caprize Investment, pointed out that factors like upcoming US elections, rising US bond yields indicating less likelihood of aggressive rate cuts by the Federal Reserve, and ongoing geopolitical conflicts have contributed to FPIs withdrawing from emerging markets, including India.
Additionally, FPIs withdrew ₹5,008 crore from the debt general limit and invested ₹410 crore through the debt Voluntary Retention Route (VRR) during this period. So far this year, FPIs have invested ₹14,820 crore in equities and ₹1.05 lakh crore in the debt market.
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