FPIs withdraw Rs 22,420 crore from Indian markets in November. What's driving the selling-spree?

FPIs selling-spree continues; withdraw Rs 22,420 cr from equities in Nov

Foreign Portfolio Investors (FPIs) have withdrawn Rs 22,420 crore from the Indian equity markets so far in November, citing high stock valuations, increased allocations to China, and the strengthening US dollar and Treasury yields as key reasons for the sell-off.

According to the data cited by PTI, FPIs saw a net outflow of Rs 22,420 crore this month, exacerbating the situation after October's record monthly withdrawal of Rs 94,017 crore — the largest in recent years. This marks the worst monthly outflow since March 2020, when FPIs had withdrawn Rs 61,973 crore from equities. However, in a contrast to the recent trend, foreign investors had made a strong investment of Rs 57,724 crore in September 2024, marking a nine-month high.

A mix of factors is weighing on investor sentiment. High valuations, concerns over corporate earnings downgrades, and shifting global allocations—particularly a tilt towards US and Chinese markets—are seen as the primary triggers.

Samir Arora, Founder of Helios Capital, dismissed the narrative that FPIs are reallocating funds to the US or China, instead pointing to underwhelming corporate earnings in India. He highlighted the minimal global investor exposure to Indian markets, typically just around 1 percent, compared to 60 percent in the US.

“The notion that investors are avoiding China due to political risks may not be entirely accurate,” Arora said during the CNBC-TV18 Global Leadership Summit in Mumbai.

V K Vijayakumar, Chief Investment Strategist at Geojit Financial Services, told PTI that the ongoing "Trump trade" and upcoming US Presidential election have played a role in reshuffling FPI preferences.

"The relentless FPI selling since October has been triggered by the cumulative impact of three factors: one, the high valuations in India; two, concerns regarding the earnings downgrade; and three, the Trump trade."

Meanwhile, Piyush Metha, CIO at Caprize Investments, characterised the movement as a "Buy US, Sell India + other emerging markets (EMs)" trade, further exacerbating the outflows.

This trend is evident in market performance since September, with Indian markets sliding 10% while US markets climbed 10–12% during the same period. Interestingly, Chinese markets have also dropped 10% from their recent peak in late September.

Despite the equity exodus, FPIs have invested ₹1.06 lakh crore in Indian debt markets in 2024. During the November review period, they infused ₹42 crore in the general debt limit and ₹362 crore via the Voluntary Retention Route (VRR).