Foreign investors turned net sellers in October, withdrawing shares worth Rs 58,711 crore in the month so far owing to escalating conflict between Israel and Iran, a sharp rise in crude oil prices, and the strong performance of the Chinese market.
The outflow came following a nine-month high investment of Rs 57,724 crore in September.
Since June, Foreign Portfolio Investors (FPIs) have consistently bought equities, after withdrawing Rs 34,252 crore in April-May. Overall, FPIs have been net buyers in 2024, except for January, April, and May, data with the depositories showed.
Looking ahead, global factors such as geopolitical developments and the future direction of interest rates will play a crucial role in determining the flow of foreign investments into the Indian equity markets, Himanshu Srivastava, Associate Director, Manager Research, Morningstar Investment Research India, said.
According to the data, FPIs made a net withdrawal of Rs 58,711 crore from equities between October 1 and 11.
"Escalating conflicts, particularly in the Middle East between Israel and Iran, have increased market uncertainty, leading to risk aversion among global investors. FPIs have become cautious and pulling out money from emerging markets," Vinit Bolinjkar, Head of research at Ventura Securities, said.
The geopolitical crisis has also led to a sharp rise in Brent crude oil prices from USD 69 per barrel on Sep 10 to USD 79 per barrel on Oct 10, which poses inflationary risks and increases the fiscal burden for India, he added.
V K Vijayakumar, Chief Investment Strategist, Geojit Financial Services, believes that FPIs have been following a strategy of 'Sell India, Buy China' after the Chinese authorities announced monetary and fiscal measures to stimulate the slowing Chinese economy. FPI money has been moving to Chinese stocks, which are cheap even now.
Together, these developments have created a temporary barrier in Indian equities, reflected in FPI outflow in both debt and equity segments.
It is anticipated these trends will stabilise around the time of the US polls, Pankaj Singh, smallcase Manager and Founder & Principal Researcher at Smartwealth.ai, said.
In the debt markets, FPIs pulled out Rs 1,635 crore through the General Limit and invested Rs 952 crore via Voluntary Retention Route (VRR) during the period under review.
So far this year, FPIs invested Rs 41,899 crore in equities and Rs 1.09 lakh crore in the debt market.