In a major shift, foreign portfolio investors (FPIs) have withdrawn a staggering Rs 85,790 crore ($10.2 billion) from Indian equities in October. The outflows, driven largely by attractive Chinese stock valuations and elevated domestic equity prices, marked the worst monthly withdrawal on record, surpassing the March 2020 outflows of Rs 61,973 crore, according to data up to October 25.
China’s Stimulus Measures and High Valuations Trigger FPI Selling
The primary factor behind this significant sell-off is China’s recent economic stimulus, which has created attractive opportunities in its stock market. The relatively high valuation of Indian equities made them a prime target for FPI sell-offs, according to VK Vijayakumar, Chief Investment Strategist at Geojit Financial Services. The trend marks a reversal from the recent nine-month high of Rs 57,724 crore investment by FPIs in September, emphasizing a notable shift in global investor sentiment.
Geopolitical Tensions and Economic Factors Weighing on Markets
Beyond valuations, geopolitical instability and evolving global economic conditions are impacting foreign investment sentiment. According to Akhil Puri of Forvis Mazars India, rising US bond yields, global conflicts, and expectations of high inflation in India have prompted FPIs to seek more stable investment avenues. The pullout from Indian equities has also led to an 8% dip in the NSE Nifty index from its peak, underscoring the broader impact of these outflows on market performance.
Future Outlook Hinges on Global Developments and Domestic Indicators
With critical global events on the horizon, including US elections, interest rate trends, and ongoing geopolitical conflicts, FPI outlook for Indian equities remains cautious. Himanshu Srivastava from Morningstar Investment Research highlights that FPIs will also closely watch domestic indicators like inflation, corporate earnings, and festive season demand before reassessing their investment strategies in India.
As foreign investors adjust to global uncertainties, the volatility in Indian equities could persist. However, a clearer trajectory may emerge as geopolitical and economic conditions stabilize.
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