Rs 77,700 crore outflow! Is ‘Sell India, Buy China’ key reason for record FII selling in October?

Heavy selling by foreign institutional investors (FIIs) broke all records in October, offloading the highest-ever shares in one month. Data available with Ace Equity shows that global investors sold shares worth Rs 77,701 crore, or $9.25 billion, on a month-to-date basis until October 18. Meanwhile, the benchmark equity index BSE Sensex lost over 3,000 points, or 3.64%, during the same period.

VK Vijayakumar, Chief Investment Strategist at Geojit Financial Services, said, “⁠FII money has been moving to Chinese stocks, which are cheap even now.” On October 12, Hong Kong’s Hang Seng index traded at a price-to-earnings (P/E) ratio of nearly 12 times, compared to around 23 times the P/E ratio of the Nifty50 index.

“More money can move to Chinese stocks. But India has much better growth prospects now compared to China,” said Vijayakumar.

The earlier highest selling by FIIs was Rs 61,972.95 crore, or $8.35 billion in March 2020 when the market got disrupted due to Covid-19 pandemic.

Hitesh Jain, Strategist, Institutional Equities Research, YES Securities, added that China’s monetary stimulus seems to have made its markets more appealing than India due to lower valuations. However, China faces deeper structural challenges that monetary and likely fiscal stimulus alone cannot resolve.

In September, China’s central bank introduced its most aggressive measures since the pandemic to revive the economy, following signs that the country might fall short of its 5% GDP growth target for 2024.

Roop Bhootra, CEO-Investment Services of Broking firm, Anand Rathi Shares and Stock Brokers, said, “While these sudden movements in capital can cause short-term market fluctuations, their overall impact is relatively limited due to the increasing depth and resilience of the Indian stock markets. Not only the depth, but the increase in liquidity has also aided in the resilience of our markets.”

Bhootra added that the consistent SIP inflows provide a steady stream of domestic liquidity, cushioning the market from sudden shocks and helping maintain balance.

“Furthermore, the long-term investment outlook remains favourable for India. Global investors continue to view India as an attractive destination for capital, driven by its robust economic fundamentals, demographic advantages, and potential for sustained growth. This long-term confidence in India's market diminishes the likelihood of major outflows in the near future, suggesting that any short-term volatility caused by arbitrage or other factors will be mitigated by strong, steady inflows and investor interest,” Bhootra said.