Constant FPI Selling Drives ₹27,680 Crore Outflow from Indian Equities in November

Foreign Portfolio Investors (FPIs) have continued to exit the Indian stock market for 33 consecutive sessions, withdrawing ₹2,502 crore on Wednesday alone and taking November’s outflow total to ₹27,680 crore.

This ongoing sell-off has placed considerable pressure on the Indian markets, with the benchmark indices struggling as they enter correction territory. While mid- and small-cap stocks have been hit particularly hard, front-line indices have also faced substantial declines.

Domestic institutional investors have attempted to counterbalance the exit by injecting capital into the markets. However, the influx of domestic funds has been insufficient to halt the market’s slide.

Valuation Concerns Impact Investor Confidence

The current wave of FPI selling follows a period of heightened investment into Indian equities after the U.S. Federal Reserve’s 50-basis-point rate cut in September. However, FPI enthusiasm has since dropped due to perceived valuation concerns and disappointing earnings results in the September quarter (Q2 FY24).

As a result, FPIs have increasingly sought out other Asian markets, such as China and Hong Kong, where valuations appear more appealing and less overextended. China’s recent economic stimulus measures have also drawn investor interest, further influencing the redirection of capital flows away from India.

Additional Market Challenges Weighing on Sentiment

Adding to the pressure, India’s economic indicators have shown signs of a slowdown. The recent surge in retail inflation, which hit a 14-month high in October, has added further uncertainty, with market participants speculating that the Reserve Bank of India (RBI) may maintain its current interest rate stance through FY25.

Elevated inflation could potentially dampen consumer spending, impacting sectors such as fast-moving consumer goods (FMCG) and automotive sales.

Total government expenditure over the first 6 months of the fiscal year reached just 44% of the full-year target, contributing to slower economic growth.

Global Factors Influence Investor Behaviour

Geopolitical developments, particularly surrounding the upcoming U.S. elections and the potential return of Donald Trump, have also created additional uncertainty. Investors are cautious, as a shift in U.S. policy could impact global markets and the outlook for emerging economies like India.

The cumulative effect of inflation concerns, rising valuations, and external pressures has transformed India’s investment landscape. Where investors once seized opportunities to buy on market dips, the focus has now shifted to selling during short-lived rallies, leading to new multi-month lows for the Sensex and Nifty indices. As of the previous trading session, both indices have fallen over 10% from their record peaks, reaching a five-month low.

Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. It is based on several secondary sources on the internet and is subject to changes. Please consult an expert before making related decisions.