Foreign Portfolio Investors (FPIs) extended their selling spree in Indian equities last week, driven by the impact of the ‘Trump Trade’ and subpar corporate earnings in India. This pushed total net outflows to ₹22,420 crore ($2.66 billion) for the month so far, depositories data showed.
This follows the highest ever net monthly outflows recorded this calendar year at ₹94,017 crore in October.
Including the latest November tally so far, the aggregate FPI outflows this calendar year touched ₹15,827 crore, official data showed.
The quantum of FPI selling in equities was, however, somewhat muted last week given the reduced number of trading days. Till November 8, FPIs had net sold equities worth ₹19,994 crore.
The November 5 US elections and the return of Republican Nominee Donald Trump as President-elect for his second term heralded a shift in market sentiment as expectations of higher US interest rates under a pro-growth and stimulus-driven policy framework drew capital back to the US
Expectations of corporate tax cuts and a short-term strengthening of the dollar, driven by potential tariff escalations, fuelled a rally in US . equities early last week. On Monday, the Dow Jones Industrial Average, S&P 500, and Nasdaq Composite reached new record highs, reflecting investor optimism over pro-growth policies and a robust earnings outlook in the US
Primary driver
Some capital market experts noted that the earlier thought process that FPIs were selling India to buy China may not be entirely true anymore as it appears they were selling India to buy US or go back to the US . The primary driver for FPI selling could be the less-than-anticipated corporate earnings growth in India, they said.
FPIs were not only on selling spree on Indian equities, they have so far in November offloaded government debt of ₹4,717 crore.
The FPI outflows highlighted the vulnerability of Indian markets to global macroeconomic shifts, despite robust long-term growth prospects and strong domestic fundamentals, experts said.
VK Vijayakumar, Chief Investment Strategist, Geojit Financial Services, said the relentless FPI selling 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.
“The Trump victory has impacted both the equity and bond markets in the US. Equities have boomed on expectations of the positive impact of the promised corporate tax cut by Trump and his pro-business policies. The bond market has been impacted by concerns of the potentially rising fiscal deficit under Trump,” he said.
The sharp up move of the 10-year US bond yield to 4.42 per cent has negative implications for emerging markets. This is reflected in the FPI selling in the debt market, too, he added.
Vipul Bhowar, Senior Director Listed Investments, Waterfield Advisors, said that the new framework established by the RBI and SEBI for reclassifying foreign FPIs as FDIs is expected to positively impact foreign inflows into India.
Reduces barriers
This framework provides greater flexibility for foreign investors and reduces barriers to entry.
With the new regulations, FPIs can hold larger stakes in Indian companies without the need for immediate divestment. This creates opportunities for increased foreign investment, particularly in mid-cap companies, and helps attract long-term capital, he said.
Himanshu Srivastava, Associate Director – Manager Research, Morningstar Investment Research India, said FPIs continued to remain net sellers in the Indian equity markets but with a much lesser quantum.
He noted that foreign investors are adopting a cautious stance towards Indian equity markets due to several factors including recent significant appreciation of US dollar and rising US Treasury yields.
This could have also led foreign investors to invest in US dollar and US treasuries in anticipation of a stronger US economy going ahead, Srivastava said.
