Foreign portfolio investors (FPIs) have been on a selling spree over the last one and a half months, withdrawing funds from Indian equities at an unprecedented pace and reversing their earlier purchasing streak. This sudden shift in FPI behaviour has weighed heavily on market sentiment.
So far in November, FPIs have offloaded nearly ₹42,000 crore worth of Indian stocks. This relentless selling pressure has significantly impacted frontline indices, pushing them into correction territory and dragging them to five-month lows.
Amid significant pressure on equities, the market faced an additional blow as US prosecutors accused Gautam Adani, chairman of the Adani Group, of bribery.
On Wednesday, prosecutors accused the Indian billionaire of involvement in a $265 million scheme to bribe Indian officials to secure contracts for a solar power project expected to yield $2 billion in profits over two decades.
The case revolves around a September 2021 bond issuance by Adani Green, which raised $750 million, including $175 million from US investors. Prosecutors claim the offering documents contained misleading statements about anti-corruption measures, potentially deceiving investors.
The Adani Group has denied the allegations brought by the US Department of Justice (DOJ) and the US Securities and Exchange Commission (SEC), labeling them as "baseless." Despite the denial, there are growing concerns that these developments could impact the broader market and exacerbate FPI outflows.
Although the Adani Group’s direct impact on India’s $4.4 trillion stock market is limited due to its relatively low weighting in benchmark indices, the indictment highlights broader issues that could dent investor confidence.
Riya Oswal Bafna, Co-Fund Manager at Purnartha, emphasised that the Adani fiasco cannot change the massive opportunity India offers for the long term. She highlighted key factors such as the country’s youngest demographic dividend, rising per capita income, and increased fiscal spending as indicators that India remains an attractive growth story.
“These are strong indicators that India will not lose its mojo anytime soon,” she said. “A one-off event cannot derail the larger picture at stake. This is a temporary phase and should not affect long-term sentiments.”
When asked about the current economic and geopolitical environment and the timeline for a slowdown in FPI outflows from Indian markets, Bafna highlighted several contributing factors.
She explained, “FPI outflows can be attributed to better risk rewards in the US due to rising growth sentiments post Trump’s victory, strengthening the dollar, and also relatively cheaper valuations in China. For the FPIs, it is a wait-and-watch story on the direction of global growth, how the US President rolls out his policies, and to the extent of tariffs that get imposed on India.”
Bafna further noted that clarity on these factors is expected by March, adding, “Until then, FPIs are likely to remain cautious in their approach.”
After withdrawing ₹1.14 lakh crore from Indian markets in October, FPIs continued their selling spree in November, pulling out an additional ₹42,000 crore, as per the latest Trendlyne data. This brought the total outflows to ₹1,56,000 crore in less than two months, marking the largest consecutive selling streak on record.
Dr V K Vijayakumar, Chief Investment Strategist, at Geojit Financial Services, said, “Mainly three factors led to this massive selling by FIIs. One is the ‘Sell India, Buy China’ trade. Two, the concerns surrounding FY25 earnings. Three, the ‘Trump trade.’ Of the three, the ‘Sell India, Buy China’ trade is over. The Trump trade also appears to be on its last leg since valuations have reached high levels in the US.”
"Therefore, the FII selling in India is likely to taper off soon. Also, valuations of large caps in India have come down from the elevated levels. FIIs have been buying IT stocks, and this has been imparting resilience to IT stocks. Banking stocks have been resilient despite FII selling, mainly due to DII buying," he further added.
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