Foreign portfolio investors (FPIs) have offloaded shares worth ₹67,309 crore in the cash market in October so far. This is the highest-ever selloff for any month (after adding Wednesday’s provisional figures) and beats the previous high of ₹65,816 crore seen in March 2020.

Rich valuations, escalating tensions in West Asia and a reallocation of portfolios by overseas investors towards China following the announcement of stimulus measures by the country may have contributed to the recent selloff.

The upliftment in sentiment on China has come at the expense of India, according to the latest BofA Global Fund Manager Survey (FMS). India, which was the second favourite market in the Asia Pacific region last month with net 25 per cent investors overweight on the country, has now slipped to the fifth position. “Long China equities” are among the most crowded trades.

“Over the last few weeks, China has enacted a preliminary stimulus to help put a check on the slowing economic growth. If Chinese equities make a comeback, it could quickly command a large share of its missing foreign investor flows. It would be difficult for India to hold on to this outperformance given its 90 per cent premium to ex-India EM basket,” said a recent note by DSP Mutual Fund.

Nifty has slid 3.25 per cent this month on the back of relentless selling by FPIs. The blow has been cushioned by domestic institutional investors, which net-bought shares worth ₹63,981 crore. Notably, over the last four-and-a-half years, domestic investors have poured in 2x more money on a down day (in BSE 500) versus when the markets are up, according to data collated by PGIM India Mutual Fund.

To be clear, with 10 trading sessions left in the month, net sales figures for FPIs could still change for the better.

During the recent EU roadshow, Macquarie met with around 25 investors, many of whom are global emerging markets (GEM) fund managers. These managers, who had been underweight on China, have recently increased their investments there, driven by the short-term rally despite concerns about China’s long-term outlook.

To capitalise on this trend, they have reduced their overweight positions in India. While India is viewed more favourably in the long term, near-term concerns include slowing auto sales, lower tax collections, and weak credit growth.

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