Foreign Portfolio Investors (FPIs) continued their aggressive selling spree last week, leading to record-breaking monthly gross outflows of approximately $13.5 billion (₹1,13,859 crore) in October 2024, the highest ever in absolute terms.

However, FPIs also invested ₹19,842 crore in the primary market, bringing the overall net outflows for October 2024 to a lower but still historic level of ₹94,017 crore.

This October’s outflows significantly exceeded the peak levels observed during the COVID-19-driven sell-off in March 2020, when net outflows stood at ₹61,973 crore. While March 2020 saw a higher percentage of outflows relative to FPI assets under management, October 2024 set a new benchmark in absolute terms.

In March 2020, Nifty50 was trading at 8,000 levels, while now it is at about 24,300.

The record selling by FPIs in October 2024 was offset by strong inflows from domestic institutional investors (DIIs) to tune of ₹ 98,400 crore in the cash market.

In just ended Samvat 2080 beginning November 1,2023, DIIs have pumped in about ₹ 4,64,000 crore in secondary market, cushioning the sharp sell off by FPIs in January, April, May and October this year. Local investors have played a key role in stabilising the Indian stock market in periods of heavy foreign investor selling. 

Between January 1 and end October this year, FPIs have made net investments of just ₹6,593 crore. In January-September this year, they had made net investments of over ₹ 1 lakh crore.

V K Vijayakumar, Chief Investment Strategist, Geojit Financial Services, said that the relentless selling by FPIs contributed hugely to the about 8 percent decline in benchmark indices from the peak in October 2024.

The FPI sell figure of ₹113859 crores through the exchanges in October is the single highest absolute selling ever in a month by FPIs, he added. 

“The rally in Chinese stocks appears to have tapered off as reflected in the declining trend in Shanghai and Hang Seng indices in recent days. In view of the elevated valuations in India, FPIs may continue to sell thereby putting a cap on any possible up move in the market”, Vijayakumar said. 

He stressed the need to understand that the primary market issues are mostly at fair valuations whereas the benchmark indices are trading at elevated valuations. “This explains the duality in FPI behaviour”, Vijayakumar added. 

Vijayakumar said that global markets will respond to the US presidential elections for a few days, after which fundamentals like US GDP growth, inflation and rate cut by the Fed will influence market moves.

Another important trend in the sectoral moves is that despite the massive FPI selling in financials, this sector is resilient since the valuations are fair and every selling is being absorbed by DIIs and individual investors, particularly HNIs, he added. 

Market experts noted that large FPI outflows from India was primarily due to strengthening of US dollar, which has risen over the past three weeks.

This has also led to increase in US yields. These factors have a negative correlation with emerging market flows, it was pointed out. China related stimulus announcements played a critical role in outflows from India to China in first half of October, but have now changed direction to US owing to some disappointment in quantum and expectations of Chinese stimulus measures. 

India is currently trading at elevated market levels with historically high valuations. This reflects over exuberance given a slowing Indian economy, lesser than anticipated earnings performance in second quarter, persistent inflation, high taxes and high interest rates. 

The US economy has been reflecting a ‘no landing’ scenario on the back of strong economic data post the US Federal Reserve’s surprising 50 basis points cut in September. 

The outcome of US Presidential elections and US Fed decision this week will decide the direction of future FPI flows, said economy watchers. 

Thursday would see monetary policy announcements from both the Federal Open Market Committee (FOMC) in the US and the Bank of England(BOE) Monetary Policy Committee in the UK. Markets are pricing in 25-basis point cuts from both, they added. 

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