In bear grip: FPIs pull out Rs 20,000 crore from equities in last 5 trading sessions amid China appeal 

The exodus of foreign investments from India’s equity markets have continued without let up, with Foreign Portfolio Investors (FPIs) pulling out nearly Rs 20,000 crore over the past five trading sessions.  

This withdrawal has been driven by high valuations of domestic stocks and a shift in FPIs’ allocation toward China. As a result, FPIs have become net sellers in India’s equity market. 

Data shows that FPIs recorded a net outflow of Rs 19,994 crore between November 4 and November 8, 2024, following a massive outflow of Rs 94,017 crore in October — the worst monthly outflow on record. Prior to this, FPIs had withdrawn Rs 61,973 crore in March 2020.  

The trend of FPI selling is expected to persist in the near term unless economic data suggests a possible reversal. If the Q3 earnings results and leading economic indicators point to a recovery in corporate profits, there could be a shift, with FPIs cutting back on their selling or even turning into buyers. Investors will need to wait for these signals, said VK Vijayakumar, Chief Investment Strategist at Geojit Financial Services. 

“Looking ahead, the direction of the Indian market in the near term will likely be more influenced by domestic factors such as the Maharashtra assembly election results, corporate earnings reports, and how retail investors react to the downturn in October and early November,” according to Sunil Damania, Chief Investment Officer at MojoPMS. 

Since June, FPIs have mostly been net buyers of Indian equities following a significant withdrawal of Rs 34,252 crore in April and May. Overall, FPIs have been net buyers in 2024, except for in January, April, May and October, according to data from depositories. 

While concerns over the US presidential election and interest rates have eased somewhat, several factors continue to make foreign flows into Indian equities less favourable. One major reason for the exit of FPIs is their growing interest in China, where valuations are attractive and growth prospects look promising.  

Recently, China has introduced a series of stimulus measures aimed at revitalising its economy and attracting foreign capital, noted Himanshu Srivastava, Associate Director at Morningstar Investment Research India. 

Abhishek Banerjee, smallcase Manager and founder of Loutusdew, believes the shift towards China is driven by hopes of a “deep value” opportunity, though he cautions that it could turn out to be a value trap. 

In addition, the recent appreciation of the US dollar and rising US Treasury yields have prompted FPIs to shift their investments into US assets, betting on a stronger US economy in the future, Srivastava added. 

Domestically, despite some recent corrections, Indian equities remain relatively expensive compared to their global peers. Concerns about slower-than-expected corporate earnings have also raised questions about the growth outlook for Indian companies. 

However, despite the ongoing outflows, November has seen a surge in new FPI registrations, with around 40-50 new applications, signalling continued interest in the Indian market. This influx is partly due to recent regulatory changes by SEBI, which have relaxed rules for NRIs, allowing them to participate up to 100 percent and facilitating easier entry and operations in India, said Manoj Purohit, Partner & Leader at BDO India. 

On the debt market front, FPIs invested Rs 599 crore in the general debt limit and Rs 2,896 crore through the voluntary retention route (VRR) during the same period. So far in 2024, FPIs have invested Rs 1.06 lakh crore in Indian debt instruments.