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The Indian equity market experienced a continued outflow of funds from Foreign Portfolio Investors (FPIs) in November 2024, marking the second consecutive month of net withdrawals. The total outflow amounted to ₹21,612 crore, significantly lower than the ₹94,017 crore recorded in October. This trend is largely attributed to a confluence of factors, primarily the rising US bond yields, the strengthening US dollar following the November 5th election results, and the anticipation of a slowdown in the Indian economy. Market experts have highlighted the ‘Trump Trade’ and ‘Sell India, Buy China’ trading strategies as key drivers of this capital flight. The considerable selling pressure from FPIs, however, was somewhat mitigated by the robust performance of Domestic Institutional Investors (DIIs), who exhibited remarkable resilience, thereby lessening the overall impact on the Indian equity markets.
The sustained selling by FPIs has resulted in their ownership of Indian companies reaching decadal lows, a stark contrast to the all-time high ownership levels achieved by DIIs. This divergence in investor behavior reflects differing assessments of market prospects. While Indian equity benchmarks have underperformed their US counterparts in terms of returns this year, global markets, in general, have exhibited robust growth in 2024. The Dow Jones, Nasdaq, and S&P 500 indices have all recorded impressive gains, ranging from 19% to 29%, while the Nifty and Sensex indices have shown more modest returns of 10% and 9.5% respectively, after recent corrections. Nifty Midcap and Nifty Smallcap, however, registered stronger returns of 22% each, indicating a more resilient performance among mid-sized and small-cap companies.
Despite the prevailing negative trend, there's a degree of optimism surrounding the potential for improved market conditions in December, a month traditionally known for positive performance in the Indian markets. This optimism is fueled by the hope that the FPI selling spree may abate. The potential for a positive market close in 2024 would mark the ninth consecutive year of positive returns for Indian markets, underscoring the long-term resilience of the Indian equity markets. Nifty50 has exhibited positive returns for 15 out of the last 20 years, highlighting the historically strong performance of the Indian stock market.
The future trajectory of foreign investment in Indian equities is contingent on several crucial factors, as highlighted by experts. These include the policies enacted under Donald Trump's administration, the prevailing global inflationary and interest rate environment, and the ever-evolving geopolitical landscape. Furthermore, the performance of Indian companies in the third quarter of 2024 and the nation's overall economic growth will significantly influence investor sentiment and shape foreign capital inflows. The interplay of these factors will determine whether the current FPI selling trend reverses or continues into the future.
Specific viewpoints from market analysts offer further insight into the situation. Sraboni Haralalka of Wodehouse Capital Advisors suggests that the recent prolonged selling pressure was largely driven by the ‘Sell India Buy China’ trade but anticipates a potential abatement of this trend, given India's position outside of Trump's initial tariff strategy. V K Vijayakumar of Geojit Financial Services notes a dichotomy in FPI activity: while secondary market selling remains strong, primary market buying remains robust, indicating that valuations play a significant role in FPI investment decisions. He anticipates a return to consistent buying only after a further market correction and the emergence of more attractive valuations. Saurabh Patwa of Quest Investment Advisors observes that much of the FPI selling is concentrated in large-cap stocks, potentially influenced by redemptions in emerging market funds with significant China exposure. He remains structurally bullish on India, anticipating a return of FPI inflows as global market dynamics stabilize.
In conclusion, the November FPI outflows represent a continuation of a broader trend, driven by a complex interplay of global and domestic factors. While the short-term outlook remains uncertain, several factors suggest a potential shift in the future. The resilience of DIIs, the historical strength of the Indian market, and the potential for a stabilization of global market dynamics all contribute to a cautiously optimistic outlook for the future of foreign investment in Indian equities. The ongoing interaction between global economic forces and the performance of Indian companies will continue to shape the investment landscape in the coming months and years.
Source: FPIs extend equity selling spree with ₹21,612 crore outflows in November