FPIs withdraw a record ₹94,000 crore from Indian equities in October due to attractive Chinese valuations

The high valuations of Indian equities have led to a shift in investments to China, where valuations are currently more attractive. File | Photo credit: The Hindu

Foreign investors pulled out as much as ₹94,000 crore (about $11.2 billion) from the Indian stock market in October, making it the worst month on record in terms of outflows, driven by increased appreciation of domestic stocks and attractive valuations of Chinese stocks.

Before this, foreign portfolio investors (FPIs) raised ₹61,973 crore from equities in March 2020. The latest outflow came after a nine-month high investment of ₹57,724 crore in September 2024.

Since June 2024, FPIs have been consistently buying shares after withdrawing ₹34,252 crore in April-May. Overall, FPIs have been net buyers in 2024, barring January, April and May, data from the depositories show.

“Looking ahead, the trajectory of global events such as geopolitical developments, interest rate movements, progress in the Chinese economy and the outcome of the US presidential election will play a crucial role in shaping future foreign investment in Indian equities,” said Himanshu Srivastava, Associate Director. This is according to Manager Research of Morningstar Investment Research India.

“On the domestic front, key indicators such as inflation trajectory, corporate earnings and demand impact during the festive season will also be closely watched by FPIs as they assess the opportunities in the Indian market,” he added.

According to the data, FPIs recorded a net outflow of ₹94,017 crore in October. The intensity of net outflows could be gauged from the fact that, barring one day, FPIs were net sellers for the entire month, reducing their total investment for 2024 to ₹6,593 crore.

This brutal selling resulted in a decline of around 8% in the benchmark indices from their peaks.

Several factors contributed to this massive withdrawal of foreign capital from Indian stock markets in October.

“Chief among these is the increased valuations of Indian equities. This has led to a shift in investments to China, where valuations are currently more attractive. Moreover, a series of stimulus measures aimed at boosting Chinese economic growth have made Chinese equities increasingly attractive to global investors,” said Mr Srivastava.

“Despite massive selling of FPIs in the financial sector, this sector is resilient as valuations are fair and every sale is absorbed by DIIs and individual investors, especially HNIs,” said VK Vijayakumar, Chief Investment Strategist at Geojit Financial Services.

Moreover, FPIs raised ₹4,406 crore from the general debt limit and invested ₹100 crore from the Voluntary Retention Route (VRR) for debt during the period under review.

So far this year, FPIs have invested ₹1.06 lakh crore in the debt market.