MUMBAI: The past two months saw the Foreign Portfolio Investors (FPIs) dramatically reversing their stance on Indian equities between September and October 2024, marking a sharp contrast in investment sentiment.
In September, FPIs infused around Rs57,724 crore into the Indian stock market, marking the highest inflow in nine months and reflecting robust foreign confidence driven by strong corporate earnings and a resilient economic outlook.
However, in October, FPIs pulled out a record-breaking Rs94,000 crore, making it the worst month for outflows from Indian equities, surpassing the previous high of Rs61,973 crore during March 2020’s COVID-19 market turbulence.
Quite a reversal
The October outflows are largely attributed to the valuation gap between Indian and Chinese equities. As Indian stocks reached historically high valuations, many FPIs shifted their focus to the Chinese market, which currently offers lower valuations, thereby presenting an attractive alternative.
"This valuation-based shift illustrates FPIs’ agility in responding to emerging global opportunities and the importance of relative pricing in emerging markets," said a market analyst while talking to businessbenchmark.news.
Despite these October withdrawals, FPIs have generally been net buyers in 2024, with outflows in only a few other months — notably January, April, and May, with a combined withdrawal of Rs34252 crore.
Since June, their purchasing resumed, underscoring a broadly positive outlook on India until October’s valuation-driven pivot.
Experts suggest that if Indian equities remain at premium valuations without proportional earnings growth, the risk of further FPI outflows could persist, especially as global investors become increasingly selective with allocations in an environment of higher interest rates and heightened competition among emerging markets.
Valuation holds the key
Looking ahead, analysts expect that while Indian markets are still attractive, the possibility of further outflows will depend on how valuations adjust and whether other economies, like China, continue to offer competitive value propositions.
This dynamics underscores the importance of valuation balance, as high valuations could continue to challenge India’s appeal to foreign investors in the short term.
