Foreign investors have made headlines by pulling out a staggering Rs 94,000 crore (approximately $11.2 billion) from the Indian stock market in October 2024, marking the worst month for outflows on record. This sharp exit was prompted by high domestic equity valuations and the appeal of attractive valuations in the Chinese stock market.
Previous Outflow Records
The recent outflow eclipses the previous significant withdrawal of Rs 61,973 crore recorded in March 2020. This comes in stark contrast to September 2024, when foreign portfolio investors (FPIs) made a notable net investment of Rs 57,724 crore, marking a nine-month high.
Shifts in Investment Trends
Following a withdrawal of Rs 34,252 crore in April-May, FPIs had shifted back to being net buyers in the Indian equity market from June onward, marking a sustained period of positive inflows. This trend continued until October, highlighting an overall preference for Indian equities, as FPIs injected significant capital into the market across the preceding months.
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However, depository data shows a dramatic reversal in October, with a net outflow of Rs 94,017 crore as FPIs turned net sellers throughout the month, with only one day of positive buying activity. This extensive selling brought their total net investment in Indian equities for the year down to Rs 6,593 crore, reflecting a sharp contrast to the strong inflows seen earlier in 2024.
Impact on Market Indices
The aggressive selling by FPIs has led to an approximately 8% decline in benchmark indices from their peak levels, highlighting the significant impact of these outflows on market performance.
Debt Investments Also Affected
In addition to equity withdrawals, FPIs also exited Rs 4,406 crore from the debt general limit and invested a mere Rs 100 crore through the debt Voluntary Retention Route (VRR) during the review period.
Market Insights from Analysts
V K Vijayakumar, Chief Investment Strategist at Geojit Financial Services, commented on the situation, noting that despite the significant FPI selling in financials, the sector remains resilient due to fair valuations. He highlighted that domestic institutional investors (DIIs) and high-net-worth individuals (HNIs) are effectively absorbing the selling pressure.
Vijayakumar further indicated that while global markets may react to the upcoming US presidential elections, the longer-term market trends will be influenced by fundamental factors such as US GDP growth, inflation, and potential interest rate cuts by the Federal Reserve.
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