Foreign Portfolio Investors (FPIs) continue to exit the Indian equity markets, pulling out ₹64,156 crore (USD 7.44 billion) this month, driven by the rupee’s depreciation, rising US bond yields, and expectations of a weak earnings season.
This reversal follows net investments of ₹15,446 crore in December, according to data from depositories, highlighting a significant shift in sentiment amid global and domestic challenges.
Key Drivers of Outflows
- Rupee Depreciation: The continued weakening of the Indian rupee is pressuring foreign investors to reduce exposure.
- Valuation Concerns: Despite recent corrections, Indian equities remain highly valued, adding to investor caution.
- Earnings Outlook: A muted earnings season and macroeconomic uncertainties have further contributed to the selloff.
Sectoral Impact and Trends
- The financial sector, which accounts for a significant portion of FPI holdings, has borne the brunt of the selloff.
- The IT sector, however, saw some buying activity due to improved outlooks and positive commentary from management.
- FPIs have also withdrawn ₹4,399 crore under the debt general limit and ₹5,124 crore through the voluntary retention route in the debt market.
Long-Term Perspective
The cautious stance by foreign investors reflects broader macroeconomic concerns. While 2024 has seen modest net inflows of ₹427 crore, this is a stark contrast to the ₹1.71 lakh crore net inflows recorded in 2023, which were fueled by optimism surrounding India’s robust economic fundamentals. Conversely, 2022 witnessed net outflows of ₹1.21 lakh crore, influenced by global central banks’ aggressive rate hikes.
With global uncertainties and domestic challenges in play, FPIs appear to be adopting a risk-averse approach, significantly scaling back their exposure to Indian equities.
