Why FPIs are on selling spree? All details here

Foreign Portfolio Investors (FPIs) continue to sell Indian equities in November 2024, recording outflows of Rs 26,533 crore so far. While the intensity of selling has reduced compared to October’s staggering  Rs 94,017 crore outflow, the trend raises questions about investor confidence and market dynamics.

FPIs recorded a net equity outflow of  Rs 26,533 crore in November, a sharp decrease from the record-breaking Rs 94,017 crore outflow in October. In contrast, FPIs invested  Rs 57,724 crore in September, marking the highest inflow in nine months.

Sectoral Impact of FPI:

1. Oil, Gas & Consumable Fuels: About  Rs 7,214 crore withdrawn in November so far. This follows a major outflow of  Rs 21,444 crore in October, making it the hardest-hit sector.
2. Financial Services:  Rs 7,092 crore pulled out in the first half of November, adding to October’s  Rs 26,139 crore outflows.
3. Automobile and Auto Components:  Rs 4,411 crore withdrawn between November 1-15, following October’s outflow of  Rs 10,440 crore.
4. FMCG Sector: Faced outflows of Rs 3,589 crore in the first half of November, compared to Rs 11,582 crore in October.

Investments in Debt Markets

Amid heavy equity sell-offs, FPIs showed modest interest in debt instruments.  Rs 42 crore invested in the debt general limit. Rs 362 crore allocated under the debt voluntary retention route (VRR). Cumulatively, FPIs have invested Rs 1.06 lakh crore in the Indian debt market this year.

Why Are FPIs Selling?

1. High values in Indian markets: Indian equities are seen as expensive compared to other markets, prompting a shift.
2. Earnings downgrade concerns: uncertainty over corporate earnings has made investors cautious.
3. Global Market Dynamics: U.S. markets gained 10–12 per cent since September, while Indian and Chinese markets fell by 10 per cent during the same period. The 'Trump trade' has further influenced capital movement.

 Policy to Attract FPIs

To ease operational hurdles for FPIs and attract long-term investments, the Reserve Bank of India ( RBI ) and the Securities and Exchange Board of India ( SEBI ) introduced new measures:

FPIs with equity holdings exceeding 10 per cent in Indian companies can reclassify these as Foreign Direct Investment (FDI). Approvals are required from the government and investor companies for reclassification. Investments breaching the 10 per cent limit must be divested or reclassified within five trading days.

These changes, under the Foreign Exchange Management (Non-debt Instruments) Rules, 2019, aim to improve foreign investment flows.

While FPI outflows have moderated in November, persistent selling highlights ongoing challenges such as high valuations and global market shifts. However, policy reforms may pave the way for improved investor confidence and long-term stability. For now, Indian markets remain under pressure, with sectoral impacts and global dynamics dictating the course.