The Indian stock market faced a sharp downturn in October 2024, experiencing the highest monthly outflow from foreign portfolio investors (FPIs) in history, with an unprecedented ₹82,000 crore pulled from Indian equities. The reasons behind this record exodus range from geopolitical tensions, particularly the Israel-Iran conflict, to attractive opportunities in the Chinese market fueled by Beijing’s recent economic stimulus initiatives.
Foreign Investors Turn Away from Indian Markets
FPIs have historically been major players in India’s financial markets. However, since early October, they’ve pulled out substantial funds, leading to sharp market corrections. The benchmark indices, Sensex and Nifty, have both declined by around 4%, which—while notable—remains less severe than the 23% drop seen in March 2020 during the COVID-19 crisis. This exodus also marks the highest monthly sell-off since the ₹65,000 crore outflow in March 2020.
The primary drivers of this trend are:
1. Geopolitical Concerns: Heightened tension between Israel and Iran has created global economic uncertainty, making international investors cautious about high-stakes markets like India.
2. China’s Economic Stimulus: With China implementing policies to stimulate its market, FPIs are shifting funds to take advantage of the potential for growth in Chinese stocks, which are trading at relatively lower valuations.
3. India’s High Valuations: Despite a slight correction, Indian stocks remain at high valuations, which many analysts believe do not reflect the underlying fundamentals, adding to investor hesitation.
Domestic Investors Step In to Stabilize the Market
Despite the severe FPI sell-off, domestic institutional investors (DIIs) have played a crucial role in supporting the Indian market. DIIs injected over ₹77,000 crore into the stock market in October, helping to mitigate the impact of FPI withdrawals. Additionally, robust retail inflows into mutual funds have further softened the blow from FPI outflows.
This domestic buying activity has kept the market somewhat stable, with Indian benchmark indices showing resilience. While Indian stocks have dipped, they haven’t witnessed the sharp plunge that might have been expected given the significant FPI outflows.
Outlook for Indian Markets
While DIIs and retail investors have helped stabilize the market, the outlook remains uncertain. The ongoing geopolitical situation and the Q2 earnings season are likely to influence market sentiment. The high valuations of Indian stocks may continue to discourage foreign investors, especially if global alternatives remain attractive.
Analysts suggest that while a sharp rebound in the Indian market is possible, it will depend largely on macroeconomic stability and external factors, particularly the geopolitical landscape and investor confidence in emerging markets.
Key Highlights
- FPIs withdrew ₹82,000 crore from Indian stocks in October 2024, marking the highest monthly outflow.
- Geopolitical concerns and China’s economic measures have redirected foreign investment from India.
- DIIs have injected ₹77,000 crore, partially offsetting FPI outflows and keeping market corrections in check.
- High valuations continue to challenge the Indian market’s attractiveness for foreign investors.
Sources: This article is based on information from LiveMint, 5Paisa, and NDTV Profit.
