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The Indian equity market presented a fascinating dichotomy in October 2024, as foreign portfolio investors (FPIs) exhibited a stark contrast in their investment behavior. While they continued to pour funds into the primary market, notably through initial public offerings (IPOs) and qualified institutional buying (QIB), the secondary market witnessed a record-breaking exodus of FPI capital.
FPIs injected a net $2,361 million (Rs 19,841.9 crore) into the primary market during October, marking their highest monthly investment since November 2021. This trend persisted throughout the first ten months of 2024, with FPIs cumulatively investing a net $10,275.5 million in the primary market. This robust primary market participation suggests a positive outlook for new ventures and ongoing confidence in the long-term potential of the Indian economy.
However, a starkly different picture unfolded in the secondary market. FPIs offloaded equities worth a staggering $13,556.9 million (Rs 1.1 lakh crore) in October, representing the highest monthly outflow on record. This surpasses the previous peak of $8,126.8 million in selling observed in March 2020. This dramatic shift in sentiment is attributed to the increasing allure of Chinese equities, driven by economic incentives from the Chinese government. FPIs, seeking higher returns and attracted by the growth trajectory of the Chinese market, appear to be reallocating their capital away from Indian equities.
The cumulative impact of this mega sell-off in October has resulted in FPIs selling a net $9,416.7 million in the secondary market for the entirety of 2024. This has significantly reduced the net inflow of FPIs across both primary and secondary markets to $858.9 million, compared to $12,054 million at the end of September. Despite this substantial outflow from the secondary market, the benchmark indices experienced a relatively modest decline of around 6% in October.
A key factor mitigating the impact of FPI selling was the robust investment by domestic institutions. According to data from the Securities and Exchange Board of India (SEBI), domestic mutual funds poured a record net Rs 87,228 crore (over $10.3 billion) into the market in October. This trend has persisted throughout 2024, with local funds investing a cumulative net Rs 3.7 lakh crore, significantly exceeding the Rs 1.7 lakh crore invested in the entirety of 2023. This surpasses the previous record of nearly Rs 2 lakh crore invested in 2022. The strong performance of domestic investors highlights the resilience of the Indian market and suggests a continued belief in the long-term prospects of the Indian economy.
The contrasting behavior of FPIs in the primary and secondary markets underscores the dynamic nature of global capital flows and the influence of geopolitical and economic factors. While the exodus of FPIs from the secondary market raises concerns about short-term volatility, the sustained investment in the primary market and the robust participation of domestic investors provide a reassuring counterbalance. The Indian equity market, while experiencing some turbulence, continues to attract capital and presents opportunities for long-term growth.
Source: FPIs raise tempo in primary market despite sustained selling in the secondary market