FPIs incessant selling continues; withdraw Rs 64,000 crore from equities in January

The exodus of FPIs from the Indian equity markets continues unabated, as they withdrew Rs 64,156 crore ($7.44 billion) this month so far on depreciation of the rupee, rise in the US bond yields and expectation of a tepid earning season.

This came after an investment of Rs 15,446 crore in the entire 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, at Morningstar Investment Advisers India said.

In addition to that, higher valuation of Indian equities, despite recent corrections, expectation of a rather tepid earning season and macroeconomic headwinds are making investors wary, he said.

Moreover, the unpredictable nature of Donald Trump's policies has also prompted investors to tread cautiously and made them stay away from riskier investment avenues, he added.

According to the data, Foreign Portfolio Investors (FPIs) offloaded shares worth Rs 64,156 crore from Indian equities so far this month (till January 24).

FPIs have been sellers on all days this month except January 2."The sustained strengthening of the dollar and rise in the US bond yields have been the principal factors driving the FII selling.

So long as the dollar index remains above 108 and the 10-year US bond yield remains above 4.5 per cent, the selling is likely to continue," V K Vijayakumar, Chief Investment Strategist, Geojit Financial Services, said.

In terms of sectors, the financial segment has been bearing the brunt of FPI selling as the bulk of their assets under management is in this sector, on the other hand, IT witnessed some buying in the wake of improved prospects for the sector and the positive management commentary.

Since US bond yields are attractive, FPIs have been sellers in the debt market, too. They withdrew Rs 4,399 crore from debt general limit and Rs 5,124 crore debt voluntary retention route.

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.