Foreign Portfolio Investors (FPIs) continued their selling spree in Indian equities with net outflows at ₹21,612 crore in November, data with depositories showed. This is the second straight month of net outflows but much lower than their massive net withdrawal of ₹94,017 crore recorded in October 2024.
Rising US bond yields and strengthening of the US dollar post November 5 election results besides expectations of slowdown in the domestic economy has largely led to the pullout in October and November, say market experts. The ‘Trump Trade’ coupled with ‘Sell India, Buy China’ trades have been the key reasons even as the domestic institutional investors (DIIs) exhibited remarkable resilience, minimising the effect of the FPI outflows on the Indian equity markets, they added.
While FPIs ownership of Indian companies touched decadal lows, the DIIs ownership levels on the other hand touched all time highs.
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Indian equity benchmarks have relatively underperformed US equities in terms of returns so far this calendar year, data showed.
Global markets have been quite strong in 2024 with average returns being 15-30 per cent. While Dow Jones index is up 19 per cent, Nasdaq is up 29 per cent and S&P 27 per cent so far this year. On the other hand Nifty returns stood at 10 per cent (after recent 10 percentage point correction); Sensex at 9.5 per cent, Nifty Midcap at 22 per cent and Nifty Smallcap at 22 per cent.
However, with December having been typically a good month for Indian markets, there is some optimism that the ongoing FPI selling spree may abate this month.
The year 2024 could be the ninth straight year where Indian markets could close with positive returns. Nifty50 has given positive returns for 15 years out of the last 20 years.
Himanshu Srivastava, Associate Director – Manager Research, Morningstar Investment Research India, said “Looking ahead, the flow of foreign investments into Indian equity markets will hinge on several key factors”.
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These include the policies implemented under Donald Trump’s presidency, the prevailing inflation and interest rate environment, and the evolving geopolitical landscape. Additionally, the third-quarter earnings performance of Indian companies and the country’s progress on the economic growth front will play a crucial role in shaping investor sentiment and influencing foreign inflows, Srivastava added.
Sraboni Haralalka, Co-Founder & Executive Director at Wodehouse Capital Advisors, said that the recent prolonged 38-session selloff was mainly driven by ‘Sell India Buy China’ trade. “However, it seems that the theme has run its course. As India is not a part of the initial tariff strategy of Trump, we expect FII sale-off to eventually subside”, Haralalka said.
V K Vijayakumar, Chief Investment Strategist at Geojit Financial Services, noted that while Foreign Portfolio Investors (FPIs) continued to sell heavily in the secondary market in November, their buying activity in the primary market remained robust. “In November, FPIs purchased stocks worth ₹17,704 crore through the primary market,” he said.
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He noted that the reason for this dichotomy is the high valuations in the secondary market and the reasonable valuations in the primary market. “It appears that FPIs are likely to turn out consistent buyers only when the market corrects further and valuations become attractive”, Vijayakumar said.
Saurabh Patwa, Head of Research and Portfolio Manager, Quest Investment Advisors said that much of the FPI selling appears concentrated in large-cap stocks. “This trend is partly attributed to redemptions in emerging market funds, many of which have underperformed due to significant exposure to China. Structurally, FPIs do not appear bearish on India, and we believe that FPI inflows will return as global dynamics stabilise”, Patwa said.