The elevated valuations of Indian equities have triggered a shift in investments towards China, where valuations are currently more attractive. File
| Photo Credit: The Hindu

Foreign investors pulled out a massive ₹94,000 crore (around USD 11.2 billion) from the Indian stock market in October, making it the worst-ever month in terms of outflows, triggered by the elevated valuation of domestic equities and attractive valuations of Chinese stocks.

Before this, foreign portfolio investors (FPIs) withdrew ₹61,973 crore from equities in March 2020. The latest outflow came after a nine-month high investment of ₹57,724 crore in September 2024.

Since June 2024, FPIs have consistently bought equities after withdrawing ₹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.

“Looking ahead, the trajectory of global events like geopolitical developments, interest rate movements, progress in the Chinese economy and the outcome of the U.S. presidential election will play a crucial role in shaping future foreign investment in Indian equities,” Himanshu Srivastava, Associate Director, Manager Research, Morningstar Investment Research India, said.

“On the domestic front, key indicators like inflation trajectory, 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.

According to the data, FPIs recorded a net outflow of ₹94,017 crore in October. The intensity of net outflows could be gauged from the fact that except for one day, FPIs were net sellers throughout the month, bringing their total investment for 2024 down to ₹6,593 crore.

This relentless selling resulted in about an 8% decline in benchmark indices from their peaks.

Several factors contributed towards this massive withdrawal of foreign capital from the Indian equity markets in October.

“The major among them is the elevated valuations of Indian equities. This has triggered a shift in investments towards China, where valuations are currently more attractive. Additionally, a series of stimulus measures aimed at bolstering Chinese economic growth has made Chinese equities increasingly appealing to global investors,” Mr. Srivastava said.

“Despite the massive FPI selling in financials, this sector is resilient since the valuations are fair and every sale is being absorbed by DIIs and individual investors, particularly HNIs,” V.K. Vijayakumar, Chief Investment Strategist, Geojit Financial Services, said.

In addition, FPIs pulled out ₹4,406 crore from the debt general limit and invested ₹100 crore from the debt Voluntary Retention Route (VRR) during the period under review.

So far this year, FPIs have invested ₹1.06 lakh crore in the debt market.

Image used for representative purpose only.
| Photo Credit: S.R. Raghunathan

Foreign investors have continued selling in the Indian market, pulling out a massive ₹85,790 crore (around $10.2 billion) from equities this month due to Chinese stimulus measures, attractive stock valuations, and the elevated pricing of domestic equities.

October is turning into the worst-ever month in terms of foreign fund outflows. In March 2020, FPIs withdrew ₹61,973 crore from equities.

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

Since June, foreign portfolio investors (FPIs) have consistently bought equities after withdrawing ₹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.

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, said.

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.

According to the data, FPIs made a net withdrawal of ₹85,790 crore from equities between October 1 and 25.

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

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, said.

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.

Heightened concerns around geopolitical stability and recent developments in China have led foreign investors to adopt a more cautious stance, reallocating capital to safer markets. This trend highlights the impact of global uncertainties on emerging markets, where volatility can significantly shape investment patterns, he added.

“With U.S. elections looming, a sharp recent rise in U.S. 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, said.

In addition, FPIs pulled out ₹5,008 crore from the debt general limit and invested ₹410 crore from the debt Voluntary Retention Route (VRR) during the period under review.

So far this year, FPIs invested ₹14,820 crore in equities and ₹1.05 lakh crore in the debt market.