Bearish sentiment: FPIs withdraw Rs 85,790 crore from market due to Chinese stimulus measures

Foreign investors are on a sell mode in the Indian market pulling out a massive Rs 85,790 crore (around $10.2 billion) from equities due to Chinese stimulus measures, attractive stock valuations and the high valuation of domestic equities. 

October is turning out to be the worst-ever month in terms of foreign fund outflows. In March 2020, FPIs withdrew Rs 61,973 crore from equities. According to the data, FPIs made a net withdrawal of Rs 85,790 crore from equities between October 1 and 25. 

The latest outflow came after a nine-month high investment of Rs 57,724 crore in September 2024. 

Since June, foreign portfolio investors (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, and May, data with the depositories showed. 

The trend of sustained FPI selling is showing no signs of reversal any time soon. The selling was triggered by the Chinese stimulus measures and the cheap valuations of Chinese stocks. Also, the elevated valuations made India the top choice of FPIs to sell, VK Vijayakumar, Chief Investment Strategist, Geojit Financial Services, told PTI. 

The sustained FPI selling impacted market sentiments, pulling the NSE’s benchmark index Nifty down by 8 percent from the peak.  

This month witnessed significant outflows in FPI as geopolitical tensions and shifting global economic conditions influenced investor sentiment, Akhil Puri, Partner, Financial Advisory, Forvis Mazars in India, said. 

“With US elections looming, a sharp recent rise in US bond yields implying diminished expectations for aggressive rate cuts by the US Fed, lower growth and high inflation expected back home, continued geopolitical issues between Israel-Iran and Russia-Ukraine has led to FPIs pulling out funds from most EMs, including India,” Piyush Mehta, smallcase Manager and CIO at Caprize Investment, told PTI. 

In addition, FPIs pulled out Rs 5,008 crore from the debt general limit and invested Rs 410 crore from the debt Voluntary Retention Route (VRR) during the period under review. So far this year, FPIs invested Rs 14,820 crore in equities and Rs 1.05 lakh crore in the debt market. 

Looking ahead, the trajectory of global events like geopolitical developments and interest rate movements will play a crucial role in shaping future foreign investment in Indian equities, Himanshu Srivastava, Associate Director, Manager Research, Morningstar Investment Research India, told PTI. 

On the domestic front, key indicators like inflation trends, corporate earnings, and the impact of festive season demand will also be closely watched by FPIs as they assess opportunities in the Indian market, he added.