The recent trend of Foreign Portfolio Investors (FPIs) selling off Indian equities has raised concerns in the market, with net outflows reaching ₹44,396 crore as of January 17. This selling spree comes amidst rising U.S. yields and a strengthening dollar, coupled with uncertainty ahead of US President-elect Donald Trump’s inauguration.
It is noteworthy that FPIs had been net buyers in Indian equities in the previous year, with net investments of ₹427 crore in 2024. However, the current selling pressure is stark, with FPIs offloading equities worth ₹44,396 crore in a short span of time.
V K Vijayakumar, Chief Investment Strategist at Geojit Financial Services, highlighted the principal reasons behind the sustained FPI selling. He mentioned that the strength of the dollar and the rising bond yields in the US are driving FPIs to divest from emerging markets like India. The attractiveness of US bond yields is leading investors to shift their focus away from Indian markets, further exacerbating the selling pressure.
Himanshu Srivastava, Associate Director at Morningstar Investment Research India, echoed similar sentiments, pointing out that the depreciation of the Indian rupee and higher valuations of Indian equities are contributing to FPIs exiting the market. The weak earnings outlook and uncertainty surrounding economic growth are also playing a role in dampening investor sentiment.
Looking ahead, Vipul Bhowar, Senior Director at Waterfield Advisors, emphasized the challenges facing the recovery of FPI inflows. He noted that fears of a global recession, geopolitical tensions, and the stronger US dollar are key obstacles that need to be overcome for a reversal in FPI flows. However, factors such as improved corporate earnings, robust GDP growth driven by domestic consumption, and potential interest rate cuts by the Reserve Bank of India could pave the way for a revival in FPI investments.
In conclusion, the current scenario of FPIs selling off Indian equities highlights the impact of global economic factors on emerging markets. As investors navigate through uncertainties, the market is closely watching for signs of a turnaround in FPI flows and the broader implications for the Indian economy.
