Foreign investors rapidly exit Indian markets

Foreign investors are rapidly exiting Indian markets due to several factors. China’s recent monetary and fiscal stimulus measures have made their market more attractive to investors. High valuations of Indian stocks compared to other emerging markets have prompted profit-taking.

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Escalating geopolitical tensions in the Middle East have driven investors toward safer havens. These factors triggered massive outflows amounting to ₹70,398 crore ($8.38 billion) in October 2024.

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Kotak Mahindra Bank, a major player in India’s financial services sector, saw Foreign Institutional Investors (FIIs) reduce their holdings by 6.35% in 2024 despite strong financial performance.

FPIs withdraw record Rs 94,000 cr (US$11B+) from Indian equities in October.https://t.co/Rw2LbiN7cH
More than China or Indian valuations (though both were factors), the sharp rise (60bps) in US 10y was the main factor in my view. For now, the final say on global cost of capital.

— Harsh Madhusudan (@harshmadhusudan) November 3, 2024

LTIMindtree, a leading entity in IT services and digital solutions, also witnessed a cumulative reduction of 1.28% in FII holdings in 2024. Reliance Industries, India’s leading conglomerate, saw FII holdings decrease by 0.84% despite positive revenue and profit growth. ICICI Prudential Life Insurance and HDFC Life Insurance, both major players in the insurance sector, experienced FII holding reductions of 1.75% and 5.65% respectively in 2024.

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Money flowing back to China is one of the reasons

— Rama Venugopal (@ramavenu) November 3, 2024

Foreign investor outflows impact Indian market

This rapid sell-off has cast a pall over India’s financial markets, signaling possible challenges ahead for the country’s economy. The outflows, if continued, could further drag on stock performance in the near term, according to analysts. The Bombay Stock Exchange (BSE) building in Mumbai stands as a potent symbol of this recent volatility, reflecting the broader investor sentiment. A recent analysis of the derivatives market also indicates a bleak future for Indian equities. The open interest base of India’s Nifty futures saw a decrease in October, marking the first decline in twelve months. This development has raised concerns among market participants about the potential for continued downward pressure on stock prices. Bharath Rajeswaran, a financial analyst based in Bengaluru, noted that the reduced open interest signifies a lack of confidence among investors in maintaining long positions. Brokerages are advising caution and suggesting that the market could experience more pain in the near term. The Indian equities market has been under strain due to multiple factors, including global economic uncertainties and domestic fiscal policies. The ongoing assessment by financial experts suggests that market players should prepare for potential volatility and continued downward trends.