FPI Withdraws $10.1 Billion from Indian Equities Since September

Foreign portfolio investors or FPIs have been net sellers of Indian shares since the end of September pulling out a massive $10.1 billion in just 15 trading sessions according to Bloomberg data. This marks the largest foreign outflow in a calendar month so far this year, surpassing even the significant withdrawals during the pandemic. The last time such a large exit was witnessed was in March 2020 when FPIs sold $8.4 billion worth of shares.

Despite the heavy foreign selling the Indian equity market has shown resilience. Domestic investors including mutual funds and retail investors have been consistently buying during market dips offsetting the impact of the FPI sell off. Since 30 September local investors have infused $10 billion into the market which has largely helped prevent a steeper fall in key indices. As a result the benchmark Nifty50 has only declined by 5.3% over this period.

Reasons Behind Continued Foreign Selling

There are several factors driving FPIs (Foreign portfolio investors) away from Indian equities. One of the key reasons is India's rich valuations. India is currently the most expensive emerging market trading at 20.6 times its projected earnings for the next year much higher compared to South Korea which trades at 8.7 times. Additionally, earnings reported by several companies for the September quarter have been lower than expected increasing the valuation premium of Indian stocks.

Another significant factor is the shifting sentiment toward China. According to a recent BofA Securities Asia fund manager survey, optimism over Chinese stimulus measures has prompted fund managers to revise their stance on China, shifting investments away from India. The number of fund managers who were overweight in India has decreased since August leading to a wider gap in allocations between the two nations.

The heavy selling by FPIs in October has significantly reduced their net year to date buying. As of Monday with a sale of $270 million, FPIs’ net YTD investment in Indian equities now stands at $2.3 billion down sharply from $12 billion at the end of September.

In comparison, South Korea has attracted the highest inflow among emerging markets in 2024, with $9 billion in investments. On the other hand Taiwan has seen the highest outflow with FPIs pulling out $10.2 billion so far this year.

Nifty50 Performance

The benchmark Nifty50 index ended Monday’s session at 24,781.10 down 72.95 points or 0.30%. The decline is largely attributed to continued foreign selling, though domestic buying has prevented a sharper fall.

At the time of writing Nifty is down 0.50% trading at 24,655 while Nifty Bank is down 0.64% trading at 51,620. Both indices have been hitting lower lows daily indicating a persistent weakness in the market. This continuous decline reflects ongoing bearish sentiment with market participants showing caution due to various global and domestic factors. The repeated downturns suggest investors remain uncertain about the near term recovery in the broader market.