Foreign portfolio investors (FPIs) withdrew Rs 4,285 crore from Indian equities during the first three trading days of January, reflecting apprehension ahead of the third-quarter earnings season and concerns over high stock valuations. This follows a net inflow of Rs 15,446 crore in December 2023, according to depository data.
This shift in investor sentiment is attributed to both global and domestic challenges.
V K Vijayakumar, chief investment strategist at Geojit Financial Services, told news agency PTI, “FPIs are likely to continue selling as long as the dollar remains strong and US bond yields offer attractive returns. The dollar index at around 109 and the 10-year bond yield above 4.5 per cent are significant deterrents to FPI flows.”
Caution among investors is evident, with global economic uncertainties and domestic market factors contributing to outflows.
Himanshu Srivastava, associate director for research at Morningstar Investment Research India, highlighted concerns about the upcoming earnings season and global policy implications.
“Investors have adopted a cautious stance ahead of the Q3FY25 earnings season, contributing to subdued market sentiment. Additionally, apprehensions surrounding the potential economic policies of US President-elect Donald Trump and their implications for global markets have added to the cautious approach,” he said.
Rupee’s depreciation against the dollar has further weighed on FPI sentiment, making Indian investments less attractive due to currency risks. Additionally, the US Federal Reserve’s indication of fewer rate cuts in 2024 has failed to boost investor confidence.
Domestically, high valuations in the secondary market are prompting FPIs to offload their shareholdings. “FPIs selling is due to high valuations in the secondary market. In the primary market where the valuations are fair, FPIs have been sustained investors,” Vijayakumar added.
The cautious approach by foreign investors stands in contrast to the massive Rs 1.71 lakh crore net inflow seen in 2023, which was fueled by optimism about India’s economic prospects. By comparison, 2022 witnessed a net outflow of Rs 1.21 lakh crore amidst aggressive global rate hikes.
So far, 2024 has recorded only Rs 427 crore in net inflows, highlighting the uneasiness among investors as markets grapple with a mix of domestic and global headwinds.