Explainer: Foreign Investors Withdraw Over Rs 85,790 Crore From Indian Stock Markets In October

Foreign Portfolio Investors withdrew Rs 85,790 crore from Indian stock markets in October, potentially making it the worst month for foreign investment withdrawals, writes Krishnanand.

New Delhi:Foreign Investors also known as Foreign Portfolio Investors (FPI) have withdrawn Rs 85,790 crore from Indian stock markets so far in October, leading to a sharp decline in India’s two stock exchanges BSE Sensex and National Stock Exchange (NSE) Nifty Index. The data showed that October this year may be the worst month ever in terms of withdrawal of foreign portfolio investment from the Indian market.

The data showed that in the first four weeks, foreign investors withdrew 10.2 billion US dollars from India an equity, which is much higher than their en-mass withdrawal in March 2020 when the world was in the grip of the COVID-19 global pandemic that killed more than 7 million people worldwide.

In March 2020, foreign investors had withdrawn nearly Rs 62,000 crore from the Indian market. As a result of this massive withdrawal this month, India’s benchmark 30 share-sensitive index, the BSE Sensex has shed nearly six per cent of its value this month.

BSE Sensex declined from 84,266 on October 1 to 79,402 on October 25, a decline of 4,864 or nearly six per cent in this month alone. The BSE Sensex 50 shed 663 points, nearly one per cent of its value on Friday as a total of 42 of the 50 stocks in the index closed the day in red.

In the case of other indices of BSE, BSE BANKEX was down by 0.94 per cent, BSE Sensex 50 was down by 0.94 per cent, BSE 100 was down by 1.01 per cent and BSE Bharat 22 Index was down by 1.49 per cent.

Similarly, NSE 50 also shed nearly one per cent on Friday and it was down by 219 points on Friday. Similarly, other indices of NSE such as NIFTY NEXT 50 were down by 1.57 per cent, NIFTY MIDCAP was down by 1.51 per cent, NIFTY AUTO was down by 2.16 per cent and NIFTY Bank was down by 1.44 per cent.

FPI Investment-Withdrawal Pattern in India

The massive outflow of over Rs 85,000 crore is coming after a nine-month high of inflow of Rs Rs 57,724 crore in September this year.

As per the data, since June this year, Foreign Portfolio Investors (FPIs) have consistently invested in Indian stock markets after a significant withdrawal of Rs 34,252 crore in April-May.

The data also showed that despite the massive withdrawal of $10.2 billion in October so far, Foreign Portfolio Investors have been net buyers this year except for January, April, and May.

Why are FPIs selling in India?

There are several reasons for the massive selling by Foreign Portfolio Investors this month. For example, geopolitical tensions caused by the Russia-Ukraine war in Europe and Israel’s war with Iran, Hamas and Hezbollah are making the market risk-averse.

More importantly, foreign investors are looking at interest rate movement in developed economies and also at the Chinese stimulus package.

According to some experts, cheap valuations of Chinese stocks are making foreign investors look at China more favourably than Indian stocks, which are considered by some as overvalued.

In addition to these global factors, FPIs are also looking at the earnings of Indian companies, festival demand and the retail inflation trend in the country because of which the Reserve Bank of India is not lowering the benchmark interest rates.

In any case, the sustained selling by foreign investors has impacted the market sentiment and both key indices BSE Sensex and NSE Nifty are down by almost 8 per cent from their peak. While the BSE Sensex is down by 6,576 points or 7.64 per cent from its peak, the NSE NIFTY is down by 8 per cent.