New Delhi: The month of October brought considerable volatility to global equity markets, with Indian markets recording the highest foreign portfolio investment (FPI) outflows among major economies. Analysts attribute the drop to factors including the high valuation of Indian equities, slowing earnings growth, and global geopolitical uncertainty, particularly around the US elections.
India’s net FPI flows for 2024 have been erased by October’s substantial outflow of $11.47 billion, resulting in a cumulative outflow of $407 million from January to November 6. Analysts indicate that recent earnings trends and India’s elevated valuations have prompted investors to shift allocations toward more affordable markets, like China, where recent stimulus measures have also made investments attractive.
Rakesh Vyas, co-chief investment officer and portfolio manager at Quest Investment Advisors, explained that the FPI outflow was initially driven by a “Buy China, Sell India” rebalancing approach but later intensified due to India’s slower earnings growth and high valuations. “With US election uncertainty behind and rising US yields coupled with muted earnings’ growth by Indian companies implies that some more selling by FIIs could continue,” he told the Hindu Business Line.
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Data from Bloomberg revealed that eight out of eleven countries tracked saw net FPI outflows, with only Taiwan, the Philippines and Japan managing net inflows. India’s FPI outflow stood at $10.43 billion, the highest among global markets with available data. Benchmark indices mirrored this trend, with India’s Nifty experiencing a sharp 6.2% decline, marking its worst monthly performance since March 2020, the peak of the COVID-19 market downturn. The Philippines, Malaysia and Vietnam also saw index declines of 3.2%, 2.9% and 2.1%, respectively.
According to Riaz Thingna, partner at Grant Thornton Bharat, the exodus from Indian equities stems in part from competitive valuations in other markets, including China, Hong Kong and Japan, alongside high interest rates in developed markets. “This is happening across the globe; some of the Asian markets that have experienced FII sell-offs lately are South Korea, Thailand, Indonesia and Malaysia. Further, there has been a trend of FIIs diversifying into European markets on account of currency stability,” Thingna told the Hindu Business Line. He added that China, in particular, has seen a significant FII flow post-stimulus, recording $53 billion in inflows, followed by $15 billion in outflows towards the end of October.
Financial sector hit hard
FPIs withdrew approximately $3.1 billion from Indian financial stocks alone in October, marking the second-largest sector outflow on record and accounting for 30% of October’s total foreign sell-off, according to a report by Reuters. Analysts attribute this downturn in financial stocks, valued at Rs 260.42 billion, to slowing loan growth and a moderation in net interest margins among Indian banks, which were impacted by the Reserve Bank of India’s (RBI) recent efforts to curb retail lending “exuberance.”
In addition to financials, FPIs withdrew from 18 out of 24 tracked sectors in October. Significant outflows were recorded in oil and gas, fast-moving consumer goods (FMCG), auto, and consumer services. The auto and oil & gas sectors each declined around 13%, while consumer stocks fell approximately 10%, as weaker earnings added to the sell-off pressure.
