March 2nd 2025.
Foreign investors have been pulling out their investments from the Indian equity markets in the month of February. This has resulted in a total outflow of Rs 34,574 crore, with the first two months of 2025 seeing a total outflow of Rs 1.12 lakh crore. This trend has been attributed to the growing global trade tensions and concerns over corporate earnings growth.
Vipul Bhowar, Senior Director - Listed Investments at Waterfield Advisors, shared his insights on the situation, stating that the high valuations of Indian equities and worries about corporate earnings have led to a continuous outflow of foreign portfolio investments (FPIs). According to data from the depositories, FPIs sold off shares worth Rs 34,574 crore in February, following a net outflow of Rs 78,027 crore in January. This brings the total outflow by FPIs in 2025 so far to Rs 1,12,601 crore.
As a result of this massive selling by FPIs, the BSE's benchmark Sensex has fallen by over 6% year-to-date. Bhowar noted that the recent market sell-off has been influenced by the rise in US bond yields, a stronger US dollar, and global economic uncertainties. This has caused investors to shift their focus towards US assets, leading to the selling of Indian equities. He also mentioned that the third quarter earnings reports for fiscal year 2025 have been modest, creating an atmosphere of uncertainty.
Bhowar explained that this issue is further compounded by falling commodity prices and reduced consumer spending, which have a negative impact on corporate profits and make Indian equities less appealing to foreign investors. V K Vijayakumar, Chief Investment Strategist at Geojit Financial Services, stated that FPIs are selling in India due to high valuations and moving their money to Chinese stocks, which have lower valuations. However, in the process, they are selling in the best performing sector with attractive valuations.
Interestingly, foreign investors have also been pulling out money from the financial services sector, which is performing well and has attractive valuations. They have also withdrawn money from the debt market, pulling out Rs 8,932 crore from the debt general limit and Rs 2,666 crore from the debt voluntary retention route. This cautious approach by foreign investors is in stark contrast to 2023, which saw an extraordinary net inflow of Rs 1.71 lakh crore, driven by optimism over India's strong economic fundamentals. In comparison, 2022 saw a net outflow of Rs 1.21 lakh crore due to aggressive rate hikes by global central banks.
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