Indian Market Sees Record $10 Billion Outflow in October

Ira Singh
Khabar Khabaron Ki,27 Oct’24

October has marked a record- breaking month for foreign institutional investor (FII) outflows from the Indian stock market, with FIIs pulling out over $10 billion so far. This is the highest monthly withdrawal on record, surpassing the $7.9 billion outflow during the peak of the COVID-19 pandemic in March 2020, according to information.Several factors have contributed to this sharp sell-off, primarily driven by global investors redirecting funds to China, which currently presents lower valuations and promising economic support measures from its government, noted analysts.

China has become a more attractive market for many foreign investors due to recent stimulus policies and improved market valuations. The Hang Seng Index and Shanghai Composite have each surged over 14% and 22%, respectively, as global funds look to capitalize on China’s economic revitalization efforts. Meanwhile, Indian equities, trading at relatively higher valuations, have faced investor hesitancy, leading to a “Buy China, Sell India” trend among FIIs. Furthermore, economic indicators like robust U.S. data and high global oil prices have dampened investor sentiment in India. Domestic equities’ historically high price-to-earnings ratios and anticipated earnings growth further added to the uncertainty in the Indian market.

According to information, despite the FII exodus, the impact on the Nifty and Sensex indices has been relatively moderate, down just around 4% and 3.7%, respectively, compared to the drastic 23% drop seen in March 2020. Strong buying by domestic institutional investors (DIIs) has helped balance the situation, with DIIs purchasing approximately Rs.77,000 crore ($9.2 billion) in October alone, a significant offset to the FII withdrawals.

Experts remain divided on the long-term viability of the “Buy China, Sell India” strategy. While some see it as a short-term tactical shift, others,caution against overcommitting to China due to ongoing geopolitical and structural economic concerns. For India, the long-term fundamentals remain appealing to many investors, even if current valuations are a deterrent. This massive outflow serves as a reminder of the volatility that global market trends and foreign policy changes can introduce, especially in emerging markets like India, noted experts.

Given the current environment, FII flows to India are likely to remain influenced by macroeconomic developments in China, as well as U.S. interest rate trends and global geopolitical tensions, including in the Middle East. The consensus among experts is that while China may currently attract foreign investment due to its recent policy changes, India’s robust domestic investor base and economic fundamentals offer resilience against such FII shifts in the long run.