FPIs offload ₹19,994 crore from Indian equities on US market uptrend: What should retail investors do?

Foreign portfolio investors (FPIs) stood disinterested in Indian markets, starting November on a dull note amid the uptrend in the US market, which was fueled by Republican Donald Trump's victory in the US presidential elections and the latest US Federal Reserve's interest rate cut verdict. 

FPIs extended their robust selling streak in the Indian stock market after the sell-off hit 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. FPIs turned net sellers in October after a sharp U-turn over global cues.

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

According to the National Securities Depository Ltd (NSDL) data, FPIs offloaded ₹19,994 crore worth of Indian equities, and the net outflow stood at ₹16,477 crore as of November 8, 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. The total debt investment was ₹2,896 crore.

“The weakness in the Indian market can be attributed largely to relentless selling by FIIs, which continues this month. After the massive FII selling of ₹1,13,858 crore in October, FIIs have so far, in November, sold equity for ₹19,849 crore in the cash market,” said Dr. V K Vijayakumar, Chief Investment Strategist, Geojit Financial Services.

Also Read: Can the Indian market bounce back in Nov or is the downward trend here to stay?

What's behind the uptrend in US markets?

According to analysts, the hallmark of the global market trend this week has been the record-setting uptrend in the US market, which is being driven by the ‘Trump trade.’ Expectations of implementing the promised corporate tax cuts and their positive impact on US corporate earnings are the fundamental logic behind the trend.

Republican Donald Trump secured a record-breaking historic victory in the US Presidential Elections 2024, defeating Democratic Vice President Kamala Harris with over 270 electoral votes to become President-elect officially.

Also Read: FPI Sell-off: Financials, Oil & Gas, Auto sectors lead October FPI exodus amid shift to cheaper markets

Claiming victory as the 47th President of the United States, Donald Trump pledged to "heal" the country and bring a “golden age" to the US as he took the stage on Wednesday, November 6. Trump has won three crucial swing states – Pennsylvania, North Carolina and Georgia, bolstering his path to 270 electoral votes.

On Thursday, November 8, the US Federal Reserve announced its seventh policy decision for 2024 after a two-day Federal Open Market Committee (FOMC) meeting and voted unanimously to slash the benchmark interest rate by 25 basis points (bps) or (1/4) quarter of a percentage point to 4.50 - 4.75 per cent, broadly in line with Wall Street and economists' estimates.

FPI trend in Indian markets

The record sell-off by FPIs in October came 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 bps interest rate cut by the Jerome Powell-led US Federal Reserve.

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).

Also Read: US Election Results: FPI outflows to China trade war—how will Trump’s victory impact global markets? Experts weigh in

Amid sustained selling by FPIs in the Indian stock markets, Sriram Krishnan, Chief Business Officer of the National Stock Exchange (NSE), expressed confidence in the resilience of India's growth story. He emphasized that the current FPI sell-off does not indicate any fundamental issue with India's economic prospects and that India remains an attractive investment destination.

He noted that despite recent market volatility, India's long-term outlook is robust, positioning the country as a solid choice for investors worldwide. He added that the FPI selloff from the market in October was due to the uncertainty surrounding the high-stakes US presidential election results. 

“If you look at the India story, India seems to be a very strong, attractive investment destination; it continues to be, so we don't see any fundamental challenges. As an exchange, we are quite confident that investors will continue to trade on NSE in India,” said Krishnan in a conversation with news agency ANI.

Also Read: US Fed cuts policy rate by quarter-point to 4.50-4.75% after Donald Trump’s poll victory; 5 key takeaways

According to Dr. V K Vijayakumar, the rationale for the FII selling is the elevated valuations in India, which appear conspicuous in the earnings deceleration evident in the Q2 numbers. The FII selling trend will likely continue until data indicate the possibility of a trend reversal. If the Q3 results and leading indicators reflect a recovery in earnings, the scenario can change with FIIs reducing selling and even turning buyers.

FPIs extend selling streak: What should retail investors do?

According to the D-Street expert, investors must wait and watch for the data. Meanwhile, investors can consider shifting money from the overvalued mid- and small caps to quality large caps. This strategy will be profitable in the medium to long run."

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. 

Also Read: Dividend Stocks: IRCTC, Oil India, Power Grid, RITES, among others to trade ex-dividend next week; Full list here

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.