FPIs withdraw Rs 4,285 cr in 3 trading sessions amid high valuations

Foreign investors pulled out Rs 4,285 crore from Indian equities in the first three trading days of the month driven by apprehensions ahead of the third-quarter earnings season and high valuations of domestic stocks.

This came following an investment of Rs 15,446 crore in the entire December, data with the depositories showed.

The shift in sentiment comes amid global and domestic headwinds.

"FPIs are likely to continue selling as long as the dollar remains strong and US bond yields offer attractive returns. The dollar index at around 109 and the 10-year bond yield above 4.5 per cent are significant deterrents to FPI flows," V K Vijayakumar, Chief Investment Strategist at Geojit Financial Services, said.

According to the data, Foreign Portfolio Investors (FPIs) offloaded shares worth Rs 4,285 crore from Indian equities in the first three trading sessions of the month (January 1 to 3).

The uncertainty among foreign investors is reflected in the ongoing trend of outflows.

"Investors have adopted a cautious stance ahead of the Q3FY25 earnings season, contributing to subdued market sentiment. Additionally, apprehensions surrounding the potential economic policies of US President-elect Donald Trump and their implications for global markets have added to the cautious approach," Himanshu Srivastava, Associate Director-Manage on Research at Morningstar Investment Research India, said.

A depreciating rupee against the dollar has further weighed on FPI sentiment, as the currency risk makes Indian investments less attractive.

Compounding this, the US Federal Reserve's indication of fewer rate cuts this year has failed to lift investor confidence.

On the domestic front, FPIs selling is primarily due to rich valuations.

"FPIs selling is due to high valuations in the secondary market. In the primary market where the valuations are fair, FPIs have been sustained investors," Vijayakumar said.

The overall trend indicates a cautious approach by foreign investors, who scaled back investments in Indian equities significantly in 2024, with net inflows of just Rs 427 crore.

This contrasts sharply with the extraordinary Rs 1.71 lakh crore net inflows in 2023, driven by optimism over India's strong economic fundamentals. In comparison, 2022 saw a net outflow of Rs 1.21 lakh crore amid aggressive rate hikes by global central banks.