Foreign Investors Withdraw Rs 20,000 Crore from Indian Equities Amid High Valuations and Shift to China

In a major development, foreign portfolio investors (FPIs) pulled out roughly Rs 20,000 crore from Indian equities over the five trading sessions between November 4-8, 2024. This major outflow attributed to high stock valuations as well as fund reallocation to China has impacted the market sentiment. The total FPI outflows in Indian equities for the year now stand at Rs 13,401 crore. By contrast, in October, FPIs took out a record Rs 94,017 crore from the market.

If there is a recovery in earnings, reversal of this trend will be expected, said analysts. As the Q3 results and leading indicators indicate earning recovery is visible, FPIs can turn into net buyers, said Geojit Financial Services' Chief Investment Strategist VK Vijayakumar. Sunil Damania, Chief Investment Officer at MojoPMS, said domestic factors like corporate earnings, results of Maharashtra assembly elections and response of retail investors will continue to play critical roles in determining direction of the market.

The highest FPI inflow this calendar year had come in September at Rs 57,724 crore invested in Indian equities after a series of unbroken purchases by the FPIs since June. In recent days, China has emerged as the new favourite with a term he referred to as "value trap". The new package of stimulus has helped draw attention from FPIs. Himanshu Srivastava from Morningstar Investment Research India finds out that FPIs are attracted by China's economic prospects, but cautions that this trend may turn into a "value trap".

In the meantime, as Manoj Purohit of BDO India reported, things were "showing promise" at 40-50 new FPI registration applications in November after SEBI recently relaxed its NRI investment conditions and has simplified its entry protocols.

The debt market has taken a positive FPI inflow even when equity outflows happen, and in the case of the general limit, with Rs 599 crore, and the voluntary retention route, Rs 2,896 crore, which made the total FPI debt investment for the year Rs 1.06 lakh crore.
Equity and debt giving out conflicting signals, foreign investment in India still remains an emerging sector that responds to reallocative strategies abroad but, at the same time, makes adjustments to domestic policies.