FPIs dump ₹3.4 lakh crore in Indian equities since October 2024—will buying resume soon? | Stock Market News

Foreign portfolio investors (FPIs) have been relentlessly selling Indian equities since October last year, leaving the Indian stock market reeling under pressure.

Data show that FPIs sold off Indian equities worth ₹15,502 crore in the cash segment from March 1st to the 7th after a ₹58,988 crore selloff in February and ₹87,375 crore in January. Overall, foreign institutional investors have sold off Indian equities worth about ₹3.4 lakh crore in the cash segment since last October.

Financial services, fast-moving consumer goods (FMCG), automobile and auto components, construction materials, and oil and gas sectors saw significant outflows by foreign investors in February.

Why are FPIs selling Indian equities?

A confluence of factors triggered the massive selloff in Indian equities. In the last week of September, the Indian stock market was at a record high, even as clear signs of an economic slowdown and stretched valuations emerged. As the market sentiment was cautious, weak earnings and rising US bond yields were key catalysts, triggering foreign capital outflows from the Indian stock market.

Vaibhav Porwal, co-founder of Dezerv, pointed out that FII outflows indicate broad-based selling, with foreign investors consistently offloading significant amounts over the past six months.

According to Porwal, the heavy selling by FIIs could be driven by multiple factors, such as the correction in the Indian stock market and elevated US bond yields.

“US bonds currently offer attractive yields without the volatility or currency risk associated with emerging market equities,” Porwal noted.

The rupee’s weakness and taxes on long and short-term capital gains are additional factors that have contributed to the selloff by foreign investors.

“The 3 per cent depreciation in the Indian rupee has eroded returns for FIIs. India levies taxes of 12.5 per cent on long-term and 20 per cent on short-term capital gains for FIIs, whereas alternative markets offer zero or lower tax environments,” Porwal observed.

Can the trend reverse soon?

Most experts believe FIIs could return to the Indian market once corporate earnings recover, US bond yields ease, and uncertainty around US tariff policies subsides.

V K Vijayakumar, Chief Investment Strategist at Geojit Financial Services, underscored that the trend of FII selling in India continued in early March, too. There are signs of a slight decline in the intensifying in the last few days.

Vijayakumar pointed out that there is a lot of buying in Chinese stocks, triggered by attractive valuations and expectations from the recent positive initiatives by the Chinese government towards their big businesses.

“The rally in Chinese stocks has resulted in the Hang Seng Index performing exceedingly well with a YTD return of 23.48 per cent as against -5 per cent year-to-date return in the Nifty 50. This is more likely to be a short-term cyclical trade since Chinese corporate earnings have continuously disappointed since 2008. The recent decline in the dollar index will limit the fund flows to the US,” said Vijayakumar.

The possibility of foreign investors resuming purchases of Indian equities appears slim, as Q4 earnings are unlikely to show a sharp rebound, and the US rate cut cycle may be short and shallow.

US President Donald Trump’s policies may drive inflation higher in the US, which could make the Federal Reserve hawkish.

Higher interest rates in the US could strengthen the US dollar and may drive up bond yields. This could aggravate foreign capital outflow, putting further pressure on the Indian stock market.

“In the near term, there are no chances of a rebound in the Indian market even though valuations are fair. Investors should remain cautious and wait to see how the scenario unfolds,” Vijayakumar said.

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