FPIs dump ₹94,017 crore in Indian equities; outflow hits record-high in October on high market valuations

Foreign portfolio investors (FPIs) extended their robust selling streak in the Indian market, with the sell-off hitting a record high in October amid ongoing geopolitical tensions and cheaper valuations in the Chinese stock market. The FPI outflows recorded in October were the highest ever in a single month in Indian markets. Notably, this comes ahead of the US Presidential Election Results. FPIs turned net sellers in October after a sharp U-turn over global cues.

This comes after an aggressive buying streak recorded in September when FPI inflows were the most year-to-date (YTD), hitting a nine-month high after the supersized 50 basis points (bps) interest rate cut by the US Federal Reserve.

According to the National Securities Depository Ltd (NSDL) data, FPIs offloaded ₹94,017 crore worth of Indian equities, and the net outflow stood at ₹96,358 crore as of October 31, taking into account debt, hybrid, debt-VRR, and equities. October's FPI outflow hit a 10-month high, the highest sell-off from the Indian market YTD. In October, the total debt investment was reduced to ₹100 crore.

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Notably, FPIs made a remarkable comeback to Indian markets in September, snapping their previous moderation, driven by domestic and global factors. They were consistent buyers in June and July after the election-related jitters faded and stability returned to Indian markets. However, FPIs had paused their buying streak with the onset of the new fiscal year 2024-25 (FY25).

FPI sell-off hits record-high in October: Here's why

“The FPI sell figure of ₹1,13,858 crore through the exchanges in October is the single highest absolute selling ever in a month by FPIs. This relentless selling contributed hugely to the about eight per cent decline in benchmark indices from the peak,” said Dr. V K Vijayakumar, Chief Investment Strategist, Geojit Financial Services.

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“However, FPIs were buyers in the primary market with an investment of ₹19,842 crore in October. It is important to understand that the primary market issues are mostly at fair valuations, whereas the benchmark indices are trading at elevated valuations. This explains the duality in FPI behaviour,” added Dr. V K Vijayakumar.

Another important trend in the sectoral moves is that despite the massive FPI selling in financials, this sector is resilient since the valuations are fair, and the sell-off is absorbed by DIIs and individual investors, particularly HNIs. Global markets will respond to the US presidential elections for a few days, after which fundamentals like US GDP growth, inflation, and the Fed's rate cut will influence market moves.

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FPIs inflow outlook

The Sensex has fallen from its all-time high of 85,978 points to 79,389 points. Recent sessions have been bearish for the indices, attributable to fund outflows and lower-than-expected Q2 earnings of India Inc. On Thursday, the 30-share BSE Sensex settled at 79,389.06 points, down 553.12 points or 0.69 per cent, while the Nifty closed at 24,205.35 points, down 135.50 points or 0.56 per cent. FPIs had fuelled the bull run in the stock market, barring the latest slump. 

According to the D-Street expert, the rally in Chinese stocks appears to have tapered off, as reflected in the recent decline in Shanghai and Hang Seng indices. Given the elevated valuations in India, FPIs may continue to sell in the near term, limiting any possible upmove in the stock market.

Experts remain concerned that the Indian stock market will overheat and valuations will be stretched. Analysts added that the Indian markets reflected their resilience positively based on the strong fundamentals and robust economic performance at the expected economic growth.

Also Read: October surprise: An influx of retail investors hasn’t made FIIs irrelevant

Interestingly, at a time when overseas investors were net sellers in Indian equities, domestic investors stayed net buyers, largely making up for the outflows by foreign investors. They accumulated stocks worth thousands of crores more than FPIs in October. This has likely cushioned the stock indices from a sharp fall. The recent gains in the index over the past three months were driven by robust GDP growth, controlled inflation, strong domestic liquidity, and favourable monsoon conditions. 

Disclaimer: The views and recommendations provided in this analysis are those of individual analysts or broking companies, not Mint. We strongly advise investors to consult with certified experts before making any investment decisions, as market conditions can change rapidly and individual circumstances may vary.