Foreign Portfolio Investors Extend Selloff in Indian Markets Amid Economic Concerns
Foreign Portfolio Investors (FPIs) have started the new year on a bearish note, continuing their selloff in India’s secondary markets. In just the first six trading sessions of January, Foreign Portfolio Investors (FPIs) have net sold shares worth nearly ₹11,500 crore (approximately $1.33 billion). This follows a trend of consistent selling in October, November, and the second half of December 2024.
Reasons Behind the FPI Selloff
Experts cite multiple reasons for this selling spree, including:
- Economic Slowdown: Growing concerns about India’s economic deceleration and muted expectations for December quarter earnings.
- Global Uncertainties: Factors such as US tariff policies under President-elect Donald Trump and rising cases of the Human Metapneumovirus (HMPV) in China.
- Profit-Taking on Market Rebounds: The recent market rally provided Foreign Portfolio Investors an opportunity to offload shares, in line with their “sell on rise” strategy.
FPI Activity in Recent Months
- December 2024: Foreign Portfolio Investors (FPIs) sold ₹2,590 crore in secondary markets but invested ₹18,000 crore in primary markets.
- November 2024: Aggressive selling led to ₹39,300 crore offloaded in secondary markets, with ₹17,700 crore invested in primary markets.
- October 2024: The selloff peaked with Foreign Portfolio Investors withdrawing ₹1.14 lakh crore from secondary markets while investing ₹19,840 crore in primary markets.
Market Performance in Early January
Despite the selloff, benchmark indices like the Sensex and Nifty rose marginally by 0.1% as of January 8. However, broader indices underperformed, with the BSE MidCap and SmallCap indices declining by 1.7% and 1%, respectively.
Domestic Investors Provide Support
While Foreign Portfolio Investors (FPIs) remain cautious, domestic institutional investors (DIIs) have stepped in as net buyers, investing over ₹12,600 crore during the same period. Retail investors have also contributed ₹2,770 crore, providing some stability to the markets.
Expert Insights
Rajesh Palviya of Axis Securities believes that Foreign Portfolio Investors are closely monitoring corporate earnings and macroeconomic indicators. He highlighted the uncertainty surrounding Trump’s trade policies, India’s upcoming Union Budget, and the rising cases of HMPV as key reasons for the bearish stance. Until there is clarity on these factors, FPIs are likely to remain on the sidelines.
Economic Outlook
India’s GDP growth is projected at 6.4% for the current fiscal year, marking the slowest pace in four years. Global institutions have varied growth forecasts:
- IMF: Average growth of 6.5% over the next few years.
- World Bank: 6.7% growth forecast.
- Goldman Sachs: A more conservative estimate of 6%.
Earnings Slowdown
Nuvama Research highlighted a continued slowdown in earnings for Q3FY25, with muted top-line growth of 8% YoY and profit growth below 10%. Nifty’s earnings per share (EPS) is expected to grow by just 2% in Q3FY25, down from 4% in H1FY25. Elevated valuations and tight liquidity conditions are further weighing on investor sentiment.
Key Events to Watch
- Union Budget 2025: Scheduled for February, it will be closely watched for government measures to boost capital expenditure and stimulate consumption.
- RBI’s Monetary Policy: The central bank’s policy decision in February will set the tone for interest rate trends.
- Global Inflation Trends: Persistent inflationary pressures in the US and uncertainty surrounding Trump’s policy decisions are contributing to global market volatility.
Conclusion
The selloff by FPIs underscores their cautious stance amid a mix of domestic and global challenges. While domestic investors are providing support, the markets are expected to remain volatile in the near term. Key events like the Union Budget and RBI’s monetary policy will likely shape market sentiment going forward.
