FPI selloff extends into new year; shares worth over $1.3 billion sold in first six sessions

Globally, market volatility persists due to ongoing inflationary pressures in the US and uncertainty surrounding President-elect Donald Trump’s policy decisions

Foreign portfolio investors (FPIs) have extended their selloff in India's secondary markets into the new year after consistent selling in October, November, and the second half of December. Foreign investors have already net sold shares worth nearly Rs 11,500 crore or $1.33 billion in the first six trading sessions of January.

Experts attribute this to concerns over India’s deepening economic slowdown along with subdued December quarter earnings expectations. Additional factors such as uncertainty regarding US tariffs under Trump’s presidency and rising cases of the HMPV virus have also acted as catalysts.

The latest selling activity comes close on the heels of intense sales in the second half of December, which also saw FPIs buying shares in the first half of the month. In December, FPIs withdrew Rs 2,590 crore from secondary markets while investing Rs 18,000 crore in primary markets. November witnessed more aggressive selling, with Rs 39,300 crore sold in secondary markets and Rs 17,700 crore invested in primary markets. The selloff peaked in October, with FPIs offloading Rs 1.14 lakh crore in secondary markets, while primary market investments stood at Rs 19,840 crore.

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The market rebound in the early days of January provided FPIs with a window to accelerate their selloff, reinforcing their "sell on rise" strategy, according to experts. As of January 8, both the Sensex and Nifty have risen by just 0.1%, while the BSE MidCap declined by 1.7% and the BSE SmallCap dropped by 1%.

In sharp contrast, domestic institutional investors (DIIs) have invested over Rs 12,600 crore during this period, with retail investors adding more than Rs 2,770 crore.

Rajesh Palviya of Axis Securities is of the view that FPIs remain focused on corporate earnings, and in the absence of clarity on macroeconomic data, corporate performance, Trump’s tariff policies, and the upcoming Indian budget, their bearish stance is unlikely to change. Rising HMPV cases in China have also contributed to this cautious approach. Until there is greater visibility on these issues, FPIs are expected to remain on the sell side, he said.

The Indian government’s latest economic forecast projects GDP growth at 6.4 percent for the current fiscal year, marking the slowest pace in four years and signalling a return to pre-Covid growth levels. Major global institutions offer varying predictions for India’s growth trajectory: the International Monetary Fund anticipates an average growth rate of 6.5 percent over the next few years, the World Bank estimates 6.7 percent, and Goldman Sachs forecasts a more conservative 6 percent growth for the fiscal year ending in March.

Meanwhile, Nuvama Research in its recent note highlighted continued earnings slowdown in Q3FY25, with muted top-line growth (8 percent YoY) for the seventh consecutive quarter and fading margin tailwinds, resulting in sub-10 percent YoY profit growth. Recovery in top-line and profits remains sluggish, risking consensus downgrades. Nifty EPS is projected to grow just 2 percent (vs. 4 percent in H1FY25), amid elevated valuations and tightening liquidity, warranting caution, said the domestic brokerage.

Also the Union Budget will be a key focus for FPIs, offering potential signals on increased government capex and measures to stimulate consumption. Additionally, the RBI's February 2025 monetary policy will play a crucial role in setting the direction for interest rate trends.

Globally, market volatility persists due to ongoing inflationary pressures in the US and uncertainty surrounding President-elect Donald Trump’s policy decisions. US equities have experienced a rocky start to the year, while bond markets continue to decline, as robust economic indicators temper expectations of immediate interest rate cuts.

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