FPI Exodus: ₹74,000 crore withdrawn from Indian equities in January so far

Indian Stock Market: Foreign Portfolio Investors (FPIs) continued to withdraw funds from the Indian market for the 17th consecutive session on Monday, January 27, pulling out an additional ₹5,015 crore from Indian equities, bringing the total outflows for January to ₹74,095 crore, according to the latest Trendlyne data.

This is the biggest monthly sell-off by FPIs since October 2024, when they withdrew ₹1.14 lakh crore from Indian equities through exchanges. Concerns over U.S. President Donald Trump’s economic policies on global trade, worries about further U.S. Fed rate cuts in 2025, weak earnings delivered by Indian companies in Q3 so far, and higher U.S. bond yields have all impacted the sentiment of overseas investors.

As FPIs continue to pull funds from Indian stocks without any sign of slowing down, domestic institutions have stepped in to absorb the selling pressure, injecting billions into the market. They bought stocks worth ₹73,586 crore, almost matching the sell-off figure by FPIs, but this couldn't prevent the markets from falling.

Small cap index corrects 20% from recent peak

Both the Nifty 50 and Sensex have corrected by up to 12% from their September peaks. It is the mid- and small-cap stocks that are facing more selling pressure, as concerns over their rich valuations are prompting investors to flee from the space. The Nifty Smallcap 100 index has now corrected by 20% from its peak, while the Nifty Midcap 100 index is down by 15.31% from its peak. 

As moderation in earnings continues in Q3, brokerage firms have started trimming their Nifty 50 target levels. Domestic brokerage firm InCred Equities has recently trimmed its Nifty 50 target by 8%, to 23,260 from 25,120 earlier. This adjustment accounts for the recent EPS cuts and weaker economic data. In a bear case scenario, the brokerage sees the Nifty falling to levels of 21,016.

Dr V K Vijayakumar, Chief Investment Strategist, Geojit Financial Services, said, "A major concern is that President Trump is coming up with new threats like the 25% tariff on Columbia for its refusal to take back deported illegal immigrants. The threatened 25% tariff on Canada and Mexico might be implemented from February 1st onwards. Therefore, will Trump walk his talk on other threats, including tariffs on China and other countries? This is a question that is being asked in economic and market circles now. These concerns are weighing on the markets."

"This week is likely to be highly volatile with other major events like the Fed decision and the budget in India. The market is looking forward to fiscal stimulus through income tax cuts in the budget. If the expectations are met, there can be a relief rally in the market. But if a rally is to sustain, we need data indicating growth and earnings revival," he added.

'Deep' losses in IT stocks

In addition to market worries, global tech stocks have seen a sharp decline in recent sessions, which has spilled over to Indian IT giants as market sentiment on AI and big tech has turned negative following the initial success of China-based DeepSeek’s V3 and R1 large language models.

These models are reportedly trained at significantly lower costs with deep discounts on inference. It was reported that DeepSeek-R1 quickly became the top free app on the U.S. Apple App Store, surpassing ChatGPT.

Global brokerage firm Jefferies, in its latest report, said, "DeepSeek would prompt the AI industry to refocus on ROI. Despite DeepSeek's impressive model efficiency, it has not accelerated AI monetization. Re-evaluating computing power needs could cause 2026 AI capex to fall (or not grow)."

UBS noted that while DeepSeek’s aggressive pricing strategy raises questions about big tech’s high capex intensity, it is important to understand that DeepSeek’s models still have many limitations compared to the frontier models from big tech, coupled with limited transparency so far on training methodology. Hence, UBS said it will wait for more details during the upcoming tech company results before reaching any conclusions.

Vijayakumar said, "The DeepSeek impact on the US stock market in general, and the tech stocks in particular, has turned out to be a reality check for the overvalued stock market. In the medium term, this is likely to have a sobering effect on markets globally."

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.