MUMBAI: Foreign investors sold about Rs 94,000-crore ($11.2 billion) worth of Indian stocks in October – the biggest monthly outflow ever – triggered by elevated stock valuations in India and lucrative prices in China, NSDL data showed.
FPIs, or foreign portfolio investors, have a huge influence on Dalal Street, and their latest flight has dragged key indices down by up to 8% from their highs in the previous month, experts said.
While domestic funds, riding on SIPs, were able to cushion the impact to some extent, the sensex & Nifty still slid about 6% in Oct. It was the largest monthly decline since the March 2020 pandemic panic for Nifty, Bloomberg reported.
“The current wave of FPI selling was triggered by the Chinese stimulus measures and the cheap valuations of Chinese stocks. The elevated valuations in India made India the top choice of FPIs to sell… FPIs may continue to sell thereby putting a cap on any possible up move in the market,” V K Vijayakumar, chief investment strategist, Geojit Financial Services, said in a note.
Another factor contributing to the selloff is slower-than-expected corporate earnings growth. “Consumption has emerged as a weak spot while select segments of BFSI (banking, financial services, & insurance) are seeing asset-quality stress,” a report by Motilal Oswal Financial Services said.
“Investors should focus on stock-specific investment where Q2 results have been good and earnings visibility is bright… Banking data indicates that deposit growth has caught up with credit growth and this augurs well for banking stocks, which are fairly valued. Public capital expenditure is likely to pick up in the second half of the fiscal and this augurs well for cement stocks,” Vijayakumar of Geojit Financial Services said. According to experts, growth in corporate earnings will be a key driver of market returns in the coming year.
Eyes On US Elections & Fed
In the near term, however, all eyes will be on the US elections & the Federal Reserve’s rate move. Financial markets across the globe will watch these two decisions keenly. The results of the US elections would set the directions for markets to a great extent in India.
“Global markets will respond to the US presidential elections for a few days, after which fundamentals like US GDP growth, inflation and rate cut by the Fed will influence market moves,” Vijayakumar said.
The US Fed is widely expected to cut rates for the second consecutive time in its meeting that ends on Thursday. Typically, a Fed rate cut is a positive sign for emerging markets like India – as more global fund managers chase higher returns.
While no one knows how Tuesday’s US elections will turn out, Donald Trump’s return to the White House could unsettle the Fed and global markets. Trump’s proposals to impose high tariffs on all imports and his threat to intrude into some of the Fed’s normally independent rate decisions could send inflation surging, the Associated Press news agency reported. Higher inflation would, in turn, compel the Fed to slow or stop its rate cuts, the report added.