Foreign Portfolio Investors (FPIs) embarked on a selling spree in Indian equities ahead of US President-elect Donald Trump’s inauguration on January 20, 2025. In just the first ten days of January, FPIs net sold shares worth ₹22,194 crore, intensifying the pressure on the domestic equity markets.
The sell-off aligns with a broader trend of volatility in Indian equities this past week, with FPIs remaining net sellers on every trading day. Concerns over potential policy shifts under the incoming US administration, coupled with global economic uncertainties, have heightened investor caution.
However, domestic institutional investors (DIIs) provided some respite to the market. Riding on robust retail inflows into equity mutual fund schemes, DIIs stepped in as net buyers, partially offsetting the FPI exodus. Their sustained confidence underscores the resilience of India’s domestic investment base amidst global headwinds.
Market analysts attribute the FPI outflows to a combination of profit booking, global liquidity adjustments, and apprehensions surrounding Trump’s policy directions. Meanwhile, retail investor participation through mutual funds remains a bright spot, reflecting growing confidence in India’s long-term growth story despite short-term market turbulence.
Sharp contrast
The January FPI outflows so far is in sharp contrast to the December 2024 position when FPIs had net invested ₹15,448 crore.
VK Vijayakumar, Chief Investment Strategist, Geojit Financial Services, said FPIs intensified their selling spree in January 2025. “They have been sellers on all days except January 2. In the recent days selling has intensified. The single major reason for the relentless selling by the FPIs is the steady rise in the dollar index which is above 109 now. The surge is the 10-year bond yield to above 4.6 percent is ensuring capital flows from emerging markets like India”, he said.
The latest data from the US indicate resilience of the US economy and unemployment has come better-than-expected at 4.1 percent. This means the possibility of more rate cuts by the Fed in 2025 is receding and this will further push up the bond yield. “In brief, the macro construct is not favourable for the return of the FPIs in the near-term. They are likely to press further sales putting pressure on the market”, Vijayakumar added.
Himanshu Srivastava, Associate Director – Manager Research, Morningstar Investment Research India, said FPIs went into a selling spree in the first few days of the new year.
Multiple factors
This exodus of foreign money from the Indian markets could be attributed to multitude of factors, such as — expectation of yet another weak earning season, concerns over the tariff war under Trump’s Presidency, slowdown in India’s GDP growth, still high inflation numbers and uncertainty over the commencement of the interest cut in India, he said.
“Record low level of Indian rupee, surge in US Bond yields coupled with rich valuation of Indian markets also make Indian equities relatively unattractive for foreign investors”, Srivastava added.
The sharp outflows from FPIs over the past week contributed significantly to the Indian equity market’s largest weekly decline in nearly a month. Both the Sensex and Nifty50 registered losses of 2 percent each during the week, while the Midcap index plunged 6 percent, and the Smallcap index declined by over 7 percent.
Market observers noted the sell-off was broad-based, with all sectoral indices, except the Nifty IT index, ending in the red. The extent of the slide highlighted the pervasive impact of FPI withdrawals, compounded by global uncertainties and profit-booking pressures.
“The market weakness was indiscriminate, sparing only the IT sector amid an otherwise grim scenario,” said analysts. The steep corrections in the broader indices, particularly mid-cap and small-cap stocks, underscored heightened investor caution in non-blue-chip segments.
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Published on January 11, 2025
https://www.thehindubusinessline.com/markets/fpis-offload-22194-crore-in-indian-equities-in-jan-1-10-ahead-of-trump-inauguration/article69089505.ece
