Foreign portfolio investors (FPIs) have net sold domestic shares worth over $10 billion so far this month amid a shift to China, which not only offers attractive valuations compared to India but has also announced several measures to support the economy and the stock market in recent weeks.
If the trend doesn’t reverse, this will be the first time that overseas funds will yank out more than $10 billion from Indian equity markets in a month.
According to the NSDL data, FPIs had offloaded Indian shares worth $9.9 billion, or Rs 82,845 crore, until Friday.
On Monday, they sold another Rs 2,262 crore ($270 million) worth of shares, the provisional data provided by the exchanges suggested, taking the selling tally this month to $10.17 billion.
Before this, the highest FPI outflows took place during the peak of Covid-19 sell-off in March 2020, at $7.9 billion.
The sudden sell-off and the uncertainty around the economic impact of the pandemic had triggered a 23 per cent collapse in the Sensex and the Nifty 50 index back then.
This time, however, despite the record FPI selloff, the Nifty 50 index is down just 4 per cent and the Sensex 3.7 per cent.
Strong inflows from domestic institutional investors (DIIs) mitigated the blow from overseas selling.
In October, DIIs have been net buyers, accumulating shares worth Rs 77,000 crore.
They have bought shares worth Rs 4.1 trillion so far this year.
“No one was expecting China to do anything positive.
"It was a massive underperformer. Foreign investors liked India but did not like its valuations.
"They had to come here because there was nowhere else to go,” said Andrew Holland, CEO of Avendus Capital Alternate Strategies.
“When China started the massive stimulus first, they had to cover whatever short positions they had, and then they had to get exposure as quickly as possible for fear of missing out.
"The Middle East and higher oil prices affect India.
"The economic data from the US has raised concerns about interests not falling as quickly as investors hoped. And flows are going to go to China as earnings are not great either in India,” he added.
China’s Hang Seng trades at 9.4 times its one-year forward earnings, while the Shanghai Composite Index trades at 12 times.
In contrast, the Nifty and the Sensex trade at 20.6 and 20.7 times, respectively.
“India’s equities are facing triple negatives: weakening GDP growth, high EPS expectations (17 per cent), and historically the highest multiples (nearly 23x),” pointed out a note by Macquarie last week.
Several large companies missing earnings estimates too has added to the gloom.
The escalating tensions between Israel and Iran have also kept investors worried and guessing about the impact of the conflict on oil prices and global trade.
Investors were worried that Iran may block the Strait of Hormuz, a critical sea trading route through which more than a third of the global crude oil supply passes.
A bunch of strong macro data from the US last week led investors to pare bets on rate cuts by the Fed in November.
Going forward, China, West Asia developments, and the outcome of the US Presidential elections will affect FPI flows.
Some experts opined that the $10 billion sell-off was significant, but not much given the current backdrop.
“It’s a big number. But India’s market capitalisation has also grown and hit new milestones.
"And domestic investor flows are more than balancing the FPI outflows,” said Siddhartha Khemka, head of retail research at Motilal Oswal Financial Services.
