Why are foreign investors leaving India? 3 reasons behind the sell-off in the stock market

Foreign Portfolio Investors (FPIs) have been withdrawing from Indian markets at an unprecedented pace in recent times. According to NSDL data, there was a massive outflow of Rs 113.858 billion in October alone, followed by an additional Rs 22.420 billion in the first half of November.

Experts point out that there are multiple factors behind this migration. Geojit Financial Services Chief Investment Strategist Dr. VK Vijayakumar sums it up thus: “The relentless FPI sell-off was triggered by the cumulative effect of three factors: first, high valuations in India; second, concerns about earnings downgrades; and third, the Trump trade.”

Vipul Bhowar, Senior Director, Listed Investments, Waterfield Advisors, said: “Global economic impacts such as weak earnings compared to other markets, high valuations and rising US bond yields have led to selling activities by FIIs.”

Interestingly, while FPIs have withdrawn from the cash market, they have pumped Rs 9.931 billion into the primary market, out of Rs 32.351 billion so far in November. Big-ticket IPOs like Swiggy and Hyundai seem to have caught their attention.

“Some of the selling by FIIs in the secondary market is offset by purchases from the primary market through large IPOs. FIIs are expected to reduce their sales as we approach the end of the calendar year,” Bhowar added.

Another important factor affecting FPI strategy is the Trump effect. “Trump’s victory affected both stock and bond markets in the United States. Stocks have rallied on expectations of the positive impact of Trump’s promised corporate tax cut and his pro-business policies. Vijayakumar said the bond market has been affected by concerns about a potentially widening fiscal deficit under Trump.

Rising US bond yields further increase pressure on emerging markets like India. “The sharp rise in US 10-year bond yields to 4.42% has negative effects on emerging markets. “This situation is also reflected in FPI sales in the debt market,” he said.

FPIs are also reshuffling their sectoral bets. “This year FPIs are reducing their weighting in mature sectors where growth is closer to nominal GDP and allocating capital to high-growth businesses. For example, in financial sectors, FPIs are increasing allocation to capital market themes such as asset management, stock markets and healthcare,” Bhowar said.

But challenges remain for some sectors that are more vulnerable to fluctuations in global commodity prices and fluctuations in infrastructure spending, such as autos, metals and construction.

Regulatory changes may provide some relief. “The new framework created by the RBI and SEBI to reclassify foreign FPIs as FDI is expected to positively impact foreign inflows into India. This framework provides greater flexibility to foreign investors and reduces barriers to entry,” says Bhowar.

Experts suggest that the trajectory of future FPI flows will largely depend on how India maintains macroeconomic stability and improves corporate earnings.

(Disclaimer: The views, opinions, advice and recommendations expressed by experts/brokers in this article are their own and do not necessarily reflect the views of India Today Group. You are advised to consult a qualified broker or financial advisor before engaging in any actual investment or trading options. )