Foreigners are growing more cautious on Indian shares as more volatility, lukewarm earnings and a surprise tax hike on equities take a toll on the enthusiasm for the market.
Global funds have turned bearish on Indian stocks for the first time in two months, with net shorts of 30,547 index futures as of Wednesday’s close. Just a month ago, large investors abroad were net long about 400,000 contracts, their most bullish stance since 2015.
That’s happening just as foreign portfolio investors — or FPIs — have been selling in the cash market. They’ve offloaded almost $2 billion net of Indian equities this month through Aug. 13, after adding more than $6 billion in June and July.
After a rally that took the benchmark NSE Nifty 50 Index up 15% this year, foreign investors became wary of Indian stock valuations with volatility spiking globally. While the Nifty 50 has dropped 3% from its peak, it still trades at more than 20 times estimated earnings for the next 12 months, up from about 18 times in October.
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