Disinvestment from Indian equity markets continued unabated, with FPIs withdrawing nearly Rs 20,000 crore in the last five trading sessions from high prices of domestic stocks and shifting their share to China.
As a result, foreign portfolio investors (FPIs) have become net sellers in the equity market, with net outflows reaching Rs 13,401 crore in 2024 so far. Going forward, the FPI selling trend is likely to continue in the near term until data indicates a possible trend reversal.
If the Q3 results and leading indicators show the sustainability of earnings, the situation could change as FPIs reduce sales and even convert buyers. Investors will have to wait and watch the details, said VK Vijayakumar, Chief Investment Strategist, Geojit Financial Services.
Since the newly elected US president will not take office until January 2025, the immediate path of the Indian market will be heavily influenced by domestic factors such as the results of the Maharashtra assembly elections, corporate earnings comments, and the behavior of retail investors due to October and early November. said Sunil Damania, Chief Investment Officer, at MojoPMS.
According to the data, FPIs have recorded a total outflow of Rs 19,994 crore so far this month, covering five trading sessions from November 4-8. This followed withdrawals of a total of Rs 94,017 crore in October, the worst monthly outflow.
Prior to this, FPIs withdrew Rs 61,973 crore from equities in March 2020. In September 2024, foreign investors made a nine-month high investment of Rs 57,724 crore.
Since June, FPIs have been buying stocks after withdrawing Rs 34,252 crore in April-May. Overall, FPIs were the biggest buyers in 2024, except for January, April, May and October, data with depositories showed.
Although the current uncertainty surrounding the US Presidential election and US interest rates have settled, several drivers of foreign inflows into Indian equity markets remain negative.
One of the main reasons for FPIs to exit Indian stocks is its newfound affinity with China, given its attractive valuation and potential to generate high growth.
China has recently introduced a series of stimulus measures to revive its sluggish economy and attract foreign investors, Himanshu Srivastava, Associate Director of Research, Morningstar Investment Research India, said.
Abhishek Banerjee, Small Caps Manager and founder at Loutusdew, believes that people are transferring money to China in the hope of a deep value trade – but the risk is that it could be a value trap.
Additionally, in recent times, the US dollar and Treasury yields have appreciated significantly, leading FPIs to invest in them in anticipation of a strong US economy that will continue, said Srivastava.
Internally, despite some corrections in recent times, Indian equity markets continue to have high valuations compared to other peer markets. Also, weaker-than-expected corporate earnings on a quarterly basis raised concerns about Indian corporate growth, he added.
Despite the ongoing financial turmoil since last month, November saw unprecedented requests for new FPI registrations of around 40-50, looking to enter the Indian market, Manoj Purohit, Partner & Leader, Financial Services Tax, Tax & Regulatory Services, BDO India, said.
This was due to the recent relaxation of the markets regulator Sebi for NRIs, allowing them to participate up to 100 percent and announcing ways to easily enter and operate in India.
On the other hand, FPIs invested Rs 599 crore in standard credit facility and Rs 2,896 crore in voluntary credit reserve (VRR) route during the period under review.
So far this year, FPIs have invested Rs 1.06 lakh crore in the debt market.