By Vineet Kumar 
FPIs Continue Selling Spree, Pull Out ₹22,420 Crore from Indian Equities in November
Foreign Portfolio Investors (FPIs) have been on a selling spree, withdrawing ₹22,420 crore from the Indian equity market in November alone. This aggressive sell-off comes amidst concerns over India’s high stock valuations, increasing FPI interest in China, and the allure of a strengthening US dollar alongside rising Treasury yields.
This outflow adds to a broader trend, with FPIs recording a net outflow of ₹15,827 crore from Indian equities so far in 2024. The steep withdrawal has dampened market sentiment, with analysts predicting subdued FPI inflows at least until January 2024. “Liquidity is tight, and we don’t expect a significant reversal in FPI behavior in the near term,” said Akhil Puri, Partner at Forvis Mazars in India.
Worsening Outflows: A Pattern Emerges
The ₹22,420 crore withdrawn this month follows an even steeper net outflow of ₹94,017 crore in October—the worst monthly outflow on record. For perspective, the last time FPIs sold this heavily was in March 2020, when withdrawals reached ₹61,973 crore, driven by pandemic-induced panic.
Interestingly, September painted a different picture. FPIs made a nine-month high investment of ₹57,724 crore during that month, reflecting confidence in India’s growth story. But since October, the tide has turned, and analysts point to three main reasons for the sell-off:
1. High Valuations in India: Indian markets have been seen as overvalued, leading investors to hunt for better opportunities elsewhere.
2. Geopolitical Concerns: Weak corporate earnings, rising inflation, and geopolitical tensions are fueling fears of an economic slowdown.
3. “Buy US, Sell India” Trade: The US Presidential election, coupled with attractive returns on the dollar and Treasury bonds, has shifted investor focus.
“The data speaks for itself,” said Piyush Mehta, CIO at Caprize Investments. “While some argue it’s a ‘Buy China, Sell India’ trend, it’s more about FPIs prioritizing the US over emerging markets like India and others. Since September, Indian markets have dropped nearly 10%, while US markets have surged 10-12%. Even China, despite its new stimulus package, hasn’t been immune, falling 10% from its recent peak.”
China Beckons
FPIs appear to be reallocating funds from India to China, drawn by the latter’s stimulus measures and more attractive valuations. “China’s government has rolled out a strong stimulus package, making their markets appealing, especially when compared to India’s current high valuations,” noted Himanshu Srivastava, Associate Director at Morningstar India.
The Impact of US Dollar Strength
Another factor weighing on FPI decisions is the strengthening US dollar and rising Treasury yields. With these, the US appears a safer and more lucrative bet. For example, a 10-year Treasury bond offering yields around 4.5-5% in a stable economy becomes hard to resist for foreign investors, especially when compared to the riskier returns from Indian equities.
Debt Markets Offer a Silver Lining
Despite the equity sell-off, FPIs have shown some interest in India’s debt markets, investing ₹42 crore in the debt general limit and ₹362 crore in the voluntary retention route (VRR) this month. For the year, FPIs have poured ₹1.06 lakh crore into Indian debt—highlighting a preference for safer, fixed-income assets amidst the equity market turmoil.
What Lies Ahead?
The road ahead looks bumpy. With inflation remaining stubbornly high, rate cuts could be delayed, further unsettling markets. Unless corporate earnings surprise positively or geopolitical concerns ease, FPIs are unlikely to return to Indian equities in a big way soon. “A significant turnaround in FPI activity is likely only by early 2024,” Puri added.
For now, the Indian markets will have to endure this phase of uncertainty, bracing for potential short-term volatility as FPIs continue to play it safe elsewhere.
