Foreign Portfolio Investors (FPIs) continued their aggressive selling spree last week, leading to record-breaking monthly gross outflows of around $13.5 billion (₹1,13,859 crore) in October 2024, the highest ever in absolute terms.
However, FPIs also invested ₹19,842 crore in the primary market, taking the total net outflow for October 2024 to a lower but still historic level of ₹94,017 crore.
Last October’s outflows significantly exceeded the peak levels seen during the COVID-19-induced sell-off in March 2020, when net outflows stood at ₹61,973 crore. While March 2020 saw a higher percentage of outflows relative to FPI assets under management, October 2024 set a new benchmark in absolute terms.
In March 2020, Nifty50 was trading at 8,000 levels, while now it is at around 24,300 levels.
The record sales by FPIs in October 2024 were offset by strong inflows from domestic institutional investors (DIIs) worth ₹ 98,400 crore in the money market.
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In the just-ended Samvat 2080, which started on November 1, 2023, DIIs pumped in around ₹4,64,000 crore into the secondary market, cushioning the sharp sell-off by FPIs in January, April, May and October this year. Local investors have played a key role in stabilizing the Indian stock market during periods of heavy selling by foreign investors.
Between January 1 and end-October this year, FPIs made net investments of just ₹6,593 crore. By January-September this year, they had made net investments of over ₹1 lakh crore.
VK Vijayakumar, Chief Investment Strategist at Geojit Financial Services, said the relentless selling by FPIs has contributed immensely to the decline of around 8 per cent in the benchmark indices from the October 2024 peak.
The FPI sales figure of ₹113859 crores through the stock exchanges in October is the highest ever absolute sales in a month by FPIs, he added.
“The rally in Chinese shares appears to have weakened, as reflected in the downward trend in the Shanghai and Hang Seng indices in recent days. Given the high valuations in India, FPIs could continue to sell, limiting any potential upside in the market,” said Vijayakumar.
He emphasized the need to understand that primary market issues tend to have fair valuations, while benchmark indices trade at higher valuations. “This explains the duality in FPI behavior,” Vijayakumar added.
Vijayakumar said global markets will react to the US presidential election for a few days after which fundamental factors such as US GDP growth, inflation and Fed rate cuts will influence market movements.
Another important trend in the sectoral movements is that despite the huge selling of FPIs in the financial sector, this sector is resilient as the valuations are reasonable and any selling is absorbed by DIIs and individual investors, especially HNIs, he added to.
Market experts noted that the large outflow of FPIs from India was mainly due to the strengthening of the US dollar, which has risen over the past three weeks.
This has also led to a rise in US interest rates. It was pointed out that these factors are negatively correlated with flows from emerging markets. China-related stimulus announcements played a crucial role in India’s outflows to China in the first half of October, but have now reversed course to the US due to some disappointment in the quantum numbers and Chinese stimulus expectations.
India is currently trading at higher market levels with historically high valuations. This reflects exuberance given the slowing Indian economy, weaker-than-expected earnings performance in the second quarter, persistent inflation, high taxes and high interest rates.
The US economy is reflecting a ‘no landing’ scenario, thanks to strong economic data following the US Federal Reserve’s surprise 50 basis point cut in September.
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The outcome of the US presidential election and the US Fed’s decision this week will determine the direction of future FPI flows, economics observers said.
Monetary policy announcements were expected to take place on Thursday from both the Federal Open Market Committee (FOMC) in the US and the Bank of England’s Monetary Policy Committee (BOE) in the UK. Markets are pricing in a 25 basis point cut in both, she added.
