Himanshu Srivastava, Associate Director-Manager Research, Morningstar Investment Research India, said that a key driver of the outflow was global trade tensions, as the United States imposed tariffs on countries including Canada, Mexico, and China, heightening fears of a potential trade war. This uncertainty triggered a risk-averse sentiment among global investors, prompting capital flight from emerging markets like India.
New Delhi: The exodus of FPIs from the Indian equity markets continued unabated, as they withdrew over Rs 7,300 crore (about 840 million) in the first week of this month due to global trade tensions, with the US imposing tariffs on countries such as Canada, Mexico, and China.
This came following an outflow of Rs 78,027 crore in the entire January. Before that, they invested Rs 15,446 crore in December, data with the depositories showed.
Going forward, experts believe that market sentiment will likely take cues from global macroeconomic developments, domestic policy measures, and currency movements.
According to the data, Foreign Portfolio Investors (FPIs) offloaded shares worth Rs 7,342 crore from Indian equities so far this month (till February 7).
Himanshu Srivastava, Associate Director-Manager Research, Morningstar Investment Research India, said that a key driver of the outflow was global trade tensions, as the United States imposed tariffs on countries including Canada, Mexico, and China, heightening fears of a potential trade war.
This uncertainty triggered a risk-averse sentiment among global investors, prompting capital flight from emerging markets like India.
Further exacerbating the situation, the Indian rupee depreciated sharply, breaching Rs 87 per US dollar mark for the first time. A weaker rupee erodes returns for foreign investors, making Indian assets relatively less attractive and adding to the pressure on FPI lows, Srivastava added.
“The strength in the dollar index and the high US bond yields continue to force the FPIs to sell. Going forward, FPIs are likely to reduce their selling since the dollar index and US bond yields are indicating a softening trend,” V K Vijayakumar, Chief Investment Strategist, Geojit Financial Services, said.
He further said that the sentiments in the Indian market would slowly improve in response to the Budget announcement and the rate cut by the Reserve Bank of India (RBI).
The victory of the BJP in the Delhi elections is likely to positively impact the market in the short run. However, the medium to long-term trend in the market will depend on the recovery in GDP growth and earnings recovery, he added.
“Given the volatile, subtle, and unpredictable market events, India still stands grounded well with the government taking all rightful measures to make it ready to face the global economic challenges that lies ahead,” Manoj Purohit, Partner & Leader, FS Tax, Tax & Regulatory Services, BDO India, said.
According to Purohit, given the volatile, subtle, and unpredictable market events, India still stands grounded well with the government taking all rightful measures to make it ready to face the global economic challenges that lies ahead.
Though the foreign portfolio investment (FPI) inflows are still not turned fully green, the announcements made in the Budget last week followed by the Centrals Bank’s policy release this week has made India back to forefront as the fastest emerging economies of the world,” said Manoj Purohit.
FPIs were buyers in the debt market. They put in Rs 1,215 crore into debt general limit and Rs 277 crore in 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 trillion 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.
Investors would track a host of macroeconomic data announcements scheduled this week, including inflation numbers, and also monitor global market trends, and trading activity of foreign institutional investors, analysts said.
The ongoing quarterly earnings announcements and the rupee-dollar trend would also influence the markets.
“This week is set to be dynamic for global and Indian markets, driven by key macroeconomic data releases and corporate earnings. Market sentiment will be shaped by inflation figures, industrial production data, and major earnings announcements,” Master Trust Group Director Puneet Singhania said.
Despite the macro factors such as fear of potential tariff and trade curbs to be announced by the newly-elected US government under Donald Trump, rising inflation risk, currency depreciation, trade wars looming around, India is well poised and self-insulated by strong measures and timely rate cut measures taken by the RBI to boost domestic investments and consumption keeping the market buoyancy live.
“The government has echoed the sentiments by simplifying tax regime, clarifying anomalies on taxation, extending several tax holidays in IFSC Gift City by another 5 years to keep the door open for them,” said Purohit.
Inviting 100 per cent FDI in insurance will deepen the budding insurance market with more penetration, competitive policy framework pushing to adopt the global best practices in the insurance sector with the entry of large offshore players.
Keeping technology, youth’s skill developments and infrastructure as primary areas to allot capex; the intention is very vivid to take India on being an autonomous nation with long term growth trajectory.
In January, FIIs offloaded Rs 72,300 crore worth of stock, continuing their selling streak after a break in December (inflows of Rs 11,000 crore). FIIs were sellers for 22 out of 23 trading days in January.
“FII shareholding in the Indian equities was 16.0 per cent as of January, which was similar to what was witnessed in October,” according to a note by JM Financial Institutional Securities.