In October, the Indian equity market suffered a massive blow as foreign investors pulled out a whopping Rs. 85790 crore. This is mainly owing to the increasing valuation of Chinese equities, which have also been pulling up equity prices. Is it the only factor that is making FPIs sell off their Indian equities or there are more to it? Let’s find out.
Fund Flow in October
In October 2024, from the 1st to the 25th, the FPIs sold off Rs. 85790 crore which is even higher than the largest selloff of Rs. 61973 crore that took place in March 2020. This selloff happened after a nine-month high inflow of funds from foreign investors in September, which was around Rs. 57724 crore.
It was last in April and May when foreign portfolio investors (fpi) sold off Indian equities worth Rs. 34252 crore. In the past four months, foreign investors have continued to buy Indian equities and remained net buyers in FY25 except for the first two months which are April and May. This massive sellout has impacted the Indian indices significantly. Nifty 50 tanked around 8% during October from its peak, and the same goes for the BSE Sensex.
Apart from equities, FPIs also sold off debt instruments worth Rs. 5008 crore from the debt general limit and invested Rs. 410 crore from the debt voluntary retention route (VRR) between October 1st to 25th.
Cumulatively, FPIs bought equities worth Rs. 14820 crore and debt instruments worth Rs. 1.05 lakh crore this year.
Factors behind the massive selloff
While the primary reason for this selloff has been the attractive Chinese market valuation and increase in stock prices in China, it is also due to the inflated Indian equity valuations.
Apart from valuations, geopolitical turmoil like the Middle East crisis and rising fuel prices also fueled the selloff. Investors are now looking for safer markets for parking their funds and China currently offering the same. This shows how emerging markets are prone to volatility and they are shaped according to the changing geopolitical scenario.
Another factor influencing foreign investors to pull out the money from the emerging markets as a whole is the upcoming US elections. Since the US election is nearing, the bond yields in the US have been sharply rising. This also made the FPIs pull out money from the emerging markets and invest back home.
Outlook for FPI investments
With the ongoing geopolitical crisis and interest rate movement, FPIs returning to the Indian markets may take some time. While global factors are playing a pivotal role in FPI investments, the festive season spiking demand, inflation again increasing, and second-quarter results will also be under consideration by the FPIs.
Source: CNBC TV18
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