FPIs take out Rs 44,396 crore from equities in January amid weak earnings outlook, rising dollar

Foreign investors have pulled out Rs 44,396 crore from Indian equities this month, driven by strength of the dollar, rising bond yields in the US, and expectations of a weak earnings season.

This came following an investment of Rs 15,446 crore in the month of December, data with the depositories showed.

The shift in sentiment comes amid global and domestic headwinds.

"The continued depreciation in Indian rupee is exerting significant pressure on foreign investors leading them to pull the money out of the Indian equity markets," Himanshu Srivastava, Associate Director - Manager Research, Morningstar Investment Advisers India, said.

In addition to that, higher valuation of Indian equities, despite recent corrections, expectation of a rather weak earning season and uncertainty over the pace of economic growth are making investors wary, he added.

According to the data, Foreign Portfolio Investors (FPIs) offloaded shares worth Rs 44,396 crore from Indian equities so far this month (till January 17).

FPIs have been sellers on all days this month except January 2.

"The principal reasons for the sustained FPIs selling are the strength of the dollar and the rising bond yields in the US. With the dollar index above 109 and the 10-year US bond yield above 4.6 per cent, it is logical for FPIs to sell in emerging markets, particularly in the most expensive emerging market India," V K Vijayakumar, Chief Investment Strategist, Geojit Financial Services, said.

Since US bond yields are attractive, FPIs have been sellers in the debt market, too. They withdrew Rs 4,848 crore from debt general limit and Rs 6,176 crore debt voluntary retention route.

Vipul Bhowar, Senior Director - Listed Investments, Waterfield Advisors, said that a cyclical improvement in corporate earnings, along with stronger GDP growth driven by resilient domestic consumption and increased government spending on infrastructure projects, could lead to a potential turnaround in FPI flows into India.

The overall trend indicates a cautious approach by foreign investors, who scaled back investments in Indian equities significantly in 2024, with net inflows of just Rs 427 crore.

This contrasts sharply with the extraordinary Rs 1.71 lakh crore net inflows in 2023, driven by optimism over India's strong economic fundamentals. In comparison, 2022 saw a net outflow of Rs 1.21 lakh crore amid aggressive rate hikes by global central banks.