FPIs extend selling streak to 27th straight session; outflows reach ₹1.21 lakh crore

Foreign portfolio investors (FPIs) appear to be losing interest in Indian stocks as they continued their selling streak for the 27th consecutive session on Tuesday, withdrawing an additional ₹2,569 crore from Indian equities, according to the latest Trendlyne data.

In all trading sessions in October, FPIs remained net sellers, offloading ₹1.14 lakh crore worth of Indian stocks through exchanges. This selling streak has extended into November, with an additional ₹7,111 crore withdrawn so far.

Overall, outflows from FPIs over the past 27 trading sessions stand at ₹1.21 lakh crore. In October, FPIs also turned net sellers in the domestic debt market, with a net outflow of ₹4,697 crore. This marks the first such instance since Indian government bonds were officially included in JP Morgan's bond indices 

This was only the second month in the current calendar year when FPIs turned net sellers. The previous instance occurred in April when they offloaded bonds worth ₹11,218 crore.

Although they continue to be net sellers in the secondary markets, FPIs were active in the primary markets, investing ₹20,000 crore in October. Analysts attribute this trend divergence to more attractive valuations in the primary market compared to the elevated valuations in the secondary market.

The last time FPIs were net buyers was on September 26, when they purchased ₹630 crore worth of shares. From June to September, foreign portfolio investors were strong buyers, acquiring stocks worth ₹26,565 crore in June, ₹32,365 crore in July, ₹7,320 crore in August, and ₹57,724 crore in September.

This buying spree significantly boosted the market, driving the Indian frontline indices up by 14.55% over these four months. However, October's record monthly net outflows have taken a toll on Indian markets, with both the Nifty 50 and Sensex finishing the month down by 6%. Now, they are 8% below their recent highs.

The Indian rupee has also felt the heat, as substantial outflows have strained the currency. In the previous trading session, the rupee touched a new low of 84.1225 against the U.S. dollar.

Valuations and growth concerns

Global and domestic conditions are now less favourable for FPIs in India, a shift from recent years when India’s rapid growth, rising corporate profits, and China’s decline made it a top investment choice. However, this appeal is waning as Indian equity valuations have grown costly, economic and earnings growth have slowed, and Chinese stocks are rebounding due to recent stimulus measures.

Further, there are signs of a slowdown in urban demand in India. Recent reports highlight that urban consumers are finding it increasingly challenging to maintain their standard of living, strained by rising living costs and food inflation, both of which are eroding the purchasing power of the middle class.

Meanwhile, Goldman Sachs Group Inc. recently shifted its stance on Indian equities from overweight to neutral, pointing to slowing economic growth and elevated valuations. Economists forecast India's economy to expand below 7% this fiscal year, down from over 8% last year.

"India's domestic growth indicators have shown signs of easing in recent months. These signs are clearly evident in manufacturing & services PMI, the government's capex spending, and industrial production. We believe that the weakness in industrial production will reflect in GDP growth as well in 2QFY25," said global brokerage firm JM Financial in its recent report. 

Looking ahead, foreign portfolio investor (FPI) sentiment towards the Indian stock market will be influenced by several key factors, including the US Federal Reserve's rate decision on Thursday, November 7, the outcome of the US presidential election, and any potential stimulus measures by China.

Disclaimer: The views and recommendations given in this article are those of individual analysts. These do not represent the views of Mint. We advise investors to check with certified experts before taking any investment decisions.