Record Exodus: Foreign investors pull out ₹1.14 lakh crore from Indian stocks in October

Concerns over slowing earnings growth, elevated valuations, rising geopolitical tensions, and recent developments in China have prompted foreign portfolio investors (FPIs) to pull out record funds from Indian equities in October, resulting in the worst monthly performance for Indian front-line indices in over four years.

The Nifty 50 and S&P BSE Sensex experienced significant declines of 6.22% and 5.83%, respectively, last month, marking their worst monthly performance since March 2020.

According to Trendlyne data, overseas investors sold ₹1.14 lakh crore worth of Indian stocks last month, marking the highest monthly outflow on record. The previous record for the largest monthly outflow occurred during the COVID-19 pandemic in March 2020, when FPIs sold ₹65,816 crore worth of Indian stocks.

The latest outflow follows a significant nine-month high investment of ₹57,724 crore in September 2024, which was spurred by the Federal Reserve’s decision to cut interest rates by 50 basis points.

Notably, in all 22 trading sessions in October, FPIs remained net sellers, with the largest outflow recorded on October 3, when they withdrew ₹15,506 crore. The last time FPIs where net buyers were on September 26, when they purchased ₹630 crore worth of shares.

Despite the outflows from the secondary market, FPIs are actively investing in primary markets, with recent reports suggesting that they have invested nearly ₹20,000 crore in October. Analysts note that FPIs are selling stocks in the secondary market, where valuations are high, and simultaneously buying in the primary market, where valuations are comparatively lower.

Meanwhile, the record FPI outflows have adversely affected the Indian rupee, which has fallen to its lowest level of ₹84.20 against the US dollar.

DIIs provide critical support

The Indian markets would have experienced a more severe downturn if domestic institutional investors (DIIs) had not stepped in to buy stocks, matching the volume of selling by FPIs and helping to mitigate the sharp correction. In October, DIIs purchased ₹1.07 lakh crore worth of Indian stocks, almost equal to the size of foreign outflows.

According to recent estimates, mutual fund houses are currently sitting on a war chest of ₹2 lakh crore, indicating that this significant amount of funds could provide support to the market if foreign portfolio investors (FPIs) continue their selling spree going forward.

Will FPIs shift strategies or continue their selling streak?

Dr V K Vijayakumar, Chief Investment Strategist, Geojit Financial Services, said,” With Nifty returning 25% and Nifty 500 returning 30% in Samvat 2080, investors should be happy. But the 6.2% correction in October, the first above 5 percent correction in 54 months, has triggered anxiety over the market performance going forward.

Vijayakumar highlighted the ongoing concern, stating, “Of serious concern is the relentless foreign institutional investor (FII) selling in October, which amounted to ₹113,858 crore through the exchanges. Given India’s elevated valuations and the growing concerns over deceleration in earnings growth, this trend of FII selling may persist, potentially impacting the benchmark indices. In this context, investors should concentrate on stock-specific investments, particularly in companies that have reported strong Q2 results and demonstrate bright earnings visibility.”

The latest data regarding banking indicates that deposit growth has caught up with credit growth, and this augurs well for banking stocks, which are fairly valued. “Public capex is likely to pick up in H2FY25, and this augurs well for cement stocks,” he said. Additionally, he highlighted that pharma stocks like Sun Pharma and Cipla have good earnings visibility.

Disclaimer: The views and recommendations given in this article are those of individual analysts. These do not represent the views of Mint. We advise investors to check with certified experts before taking any investment decisions.