FPIs withdraw Rs 85,790 crore from Indian equities amid Chinese market valuations

Foreign investors have significantly pulled back from the Indian equity market, withdrawing Rs 85,790 crore. This trend is attributed to Chinese stimulus measures, appealing stock valuations in China, and the elevated pricing of domestic equities. As a result, October is on track to become the worst month ever for foreign fund outflows, surpassing the previous record set in March 2020, when FPIs withdrew Rs 61,973 crore.

This latest outflow follows a substantial inflow of Rs 57,724 crore in September 2024, marking a sharp contrast in investor sentiment. Since June, foreign portfolio investors (FPIs) had been net buyers after a brief withdrawal of Rs 34,252 crore during April and May. Overall, FPIs have shown net buying behavior in 2024, with the exception of January, April, and May, according to data from the depositories.

Looking ahead, the trajectory of foreign investments in Indian equities will likely be influenced by global events, including geopolitical developments and interest rate movements, noted Himanshu Srivastava, Associate Director at Morningstar Investment Research India. He said that key domestic indicators, such as inflation trends, corporate earnings, and the impact of festive season demand, will also be closely monitored by FPIs as they evaluate market opportunities.

Data shows that FPIs recorded a net withdrawal of Rs 85,790 crore from equities between October 1 and October 25. This sustained selling pressure has negatively impacted market sentiment, causing the NSE 's benchmark index, Nifty, to decline by 8 per cent from its peak.

The trend of persistent FPI selling appears unlikely to reverse in the near term. Analysts attribute the selling to attractive valuations of Chinese stocks, compounded by elevated valuations in India that have made it a prime target for FPI divestment. VK Vijayakumar, Chief Investment Strategist at Geojit Financial Services, stated that geopolitical tensions and shifting global economic conditions have further influenced investor sentiment.

Akhil Puri, Partner at Forvis Mazars in India, highlighted that heightened geopolitical concerns and recent developments in China have led foreign investors to adopt a cautious approach, reallocating capital to safer markets. This behavior underscores the impact of global uncertainties on emerging markets, where volatility can significantly affect investment patterns.

Piyush Mehta, smallcase Manager and CIO at Caprize Investment, pointed out that with upcoming US elections, rising US bond yields, and ongoing geopolitical issues—such as tensions between Israel and Iran, as well as Russia and Ukraine—FPIs have been withdrawing funds from various emerging markets, including India.

Additionally, during this period, FPIs withdrew Rs 5,008 crore from the debt general limit while investing Rs 410 crore through the Debt Voluntary Retention Route (VRR). Despite the recent outflows, FPIs have invested Rs 14,820 crore in equities and Rs 1.05 lakh crore in the debt market so far this year.

(With PTI inputs.)