Foreign investors pull out nearly Rs 20,000 Cr from equities in the last 5 trading sessions

The exodus of foreign investments from Indian equity markets continued unabated, with FPIs pulling out nearly Rs 20,000 crore in the last five trading sessions on higher valuations of domestic stocks and shifting their allocation to China, according to a detailed report by the Press Trust of India.

As a result, foreign portfolio investors (FPIs) have turned net sellers in the equity market, with total outflows reaching Rs 13,401 crore for 2024 so far, the PTI report explained further.

FPI trend is likely to continue in the near term

Going ahead, the FPI selling trend is likely to continue in the near term till data indicate the possibility of a trend reversal. If the Q3 results and leading indicators reflect a recovery in earnings, the scenario can change with FPIs reducing selling and even turning buyers. Investors will have to wait and watch for the data, VK Vijayakumar, Chief Investment Strategist, Geojit Financial Services, said.

With the newly elected US president not assuming office until January 2025, the Indian market's near-term direction will be more influenced by domestic factors like the Maharashtra assembly election results, corporate earnings commentaries, and retail investor behaviour in response to the October and early November downturn, Sunil Damania, Chief Investment Officer, MojoPMS, said.

According to the data, FPIs recorded a net outflow of Rs 19,994 crore so far this month, comprising five trading sessions from November 4-8.

October withdrawal of Rs 94,017 was the worst-ever

This came following a net withdrawal of Rs 94,017 crore in October, the worst monthly outflow. Before 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 consistently bought equities after withdrawing Rs 34,252 crore in April-May. Overall, FPIs have been net buyers in 2024, except for January, April, May and October, data with the depositories showed, the PTI report detailed further.

Major market event the US election is behind now

While the immediate uncertainty over the US Presidential election and interest rates in the US has been addressed, several drivers of the foreign flows into the Indian equity markets continue to remain unfavourable.

One of the primary reasons for FPIs exiting Indian equities is their newfound affinity towards China, given its attractive valuation and potential for generating higher growth. China has recently introduced a series of stimulus measures to revitalise its slowing economy and attract foreign investments, Himanshu Srivastava, Associate Director Manager Research, Morningstar Investment Research India, said.

Abhishek Banerjee, small case Manager and founder at Loutusdew, believes that people are shifting 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 stronger US economy going ahead, Srivastava said.

On the domestic front, despite some correction in recent times, Indian equity markets continue to have high valuations compared to other peer markets. Also, weaker-than-expected quarterly corporate earnings have raised concerns about the growth prospects of Indian companies, he added.

Despite the ongoing outrage of funds since last month, November saw unprecedented applications of about 40-50 new FPI registrations, which are eyeing to enter the Indian market, Manoj Purohit, Partner & Leader, Financial Services Tax, Tax & Regulatory Services, BDO India, said.

This was due to markets regulator Sebi's recent relaxation to NRIs, permitting them to participate up to 100 per cent and announcing measures for ease of entry and operations in India.

On the other hand, FPIs invested Rs 599 crore in the debt general limit and Rs 2,896 crore in the debt voluntary retention route (VRR) during the period under review. So far this year, FPIs invested Rs 1.06 lakh crore in the debt market. Global investors and market participants will closely follow these developments. This will help them make informed investment decisions.