FPIs withdraw Rs 94,000 crore from Indian equities in October in worst monthly outflow

Foreign Portfolio Investors (FPIs), who play a major role on Dalal Street, contributed to a downturn of up to 8 percent in key indices since the previous month’s highs, according to experts.

Although domestic funds, bolstered by strong SIP inflows, provided some stability, the Sensex and Nifty still fell around 6 percent in October—the steepest monthly drop for Nifty since the March 2020 pandemic panic, reports Bloomberg.

The primary drivers of this FPI exodus include China’s recent economic stimulus and the low valuations of Chinese stocks, which prompted investors to shift focus.

“India’s elevated valuations made it a top candidate for FPIs to reduce their holdings. This selling may persist, limiting market gains,” noted V.K. Vijayakumar, Chief Investment Strategist at Geojit Financial Services, according to a Times of India report.

Weaker-than-anticipated corporate earnings growth further spurred the sell-off.

“Consumption has become a weak point, with some areas of BFSI (banking, financial services, & insurance) facing asset-quality challenges,” a report by Motilal Oswal Financial Services indicated.

Experts suggest investors should now focus on specific stocks with strong Q2 performance and clear earnings potential.

Vijayakumar pointed out that “banking data shows deposit growth aligning with credit growth, which is favorable for banking stocks, now fairly valued.”

He added that increased public capital expenditure expected in the fiscal year's second half should also benefit cement stocks. Corporate earnings growth will likely be a key market driver in the coming year.

In the immediate term, markets are watching closely for the outcome of the US elections and the Federal Reserve's rate decision.

These events are anticipated to shape global markets, including India’s.

“Global markets will react to the US election results initially, after which economic fundamentals like US GDP, inflation, and potential Fed rate cuts will drive movements,” Vijayakumar was quoted as explaining by the Times of India.

The US Federal Reserve is expected to announce its second consecutive rate cut this Thursday, a move that generally supports emerging markets like India by attracting more foreign investment.

However, if former President Donald Trump returns to office, this could create economic uncertainty, particularly if he implements high import tariffs or pressures the Fed, potentially leading to higher inflation, as per reports.

Rising inflation could then compel the Fed to reconsider rate cuts, according to the Associated Press.