FPIs resume selling spree in January, pull out nearly ₹12,000 crore from Indian equities. What’s in store ahead?

Foreign portfolio investors (FPIs) resumed their selling streak in January after turning net buyers in December. So far this month, FPIs have sold nearly ₹12,000 crore worth of Indian stocks through exchanges.

The change in sentiment reflects the impact of both global and domestic challenges, which is currently affecting overseas investors’ outlook on Indian equities.

Although FPIs remained net buyers in December 2024, selling intensified in the second half, leading to a 2% correction in the Nifty 50 index. During October and November, FPIs withdrew nearly ₹1.60 lakh crore from Indian equities.

Overall, FPIs investment in equities remained positive in 2024, but it declined around 99 per cent as compared to 2023.

This significant selling by FPIs has brought their share in Indian equities to 16.1% in December 2024, a 12-year low. During the same period last year, FPIs held a 16.8% share in Indian equities.

As of December 2024, FPI Equity Assets Under Custody (AUC) stood at ₹71.1 trillion, lower than ₹71.9 trillion in November 2024, as per the JM Financial report. The reversal in FPI sentiment in January can be attributed to various factors, one of which is concerns over the HMVP virus and muted December quarter earnings expectations.

The December quarter business updates released by major companies came in below estimates. Reports also suggest that the third quarter of FY25 will likely continue the earnings slowdown trend, raising concerns about downgrades and share target price cuts.

The past two quarters have witnessed a flood of downgrades and target price reductions amid the earnings slowdown, and estimates suggest that this trend will persist in the current quarter as well. Additionally, the growth slowdown in the Indian economy has added another layer of concern.

Trump’s tariff policies add to FPI concerns

On the global front, concerns surrounding Donald Trump’s policies aimed at making American businesses more competitive on a global scale have raised fears of a potential global trade war. His reinforcement of tariff plans, particularly targeting China, has heightened worries about a possible spike in inflation. This, in turn, could limit the U.S. Federal Reserve’s ability to implement further rate cuts.

The latest minutes from the Fed’s December meeting revealed that nearly all committee participants noted increased upside risks to the inflation outlook. This has added to investor concerns that fewer rate cuts may be implemented this year than initially expected.

Additionally, strong economic data from the U.S. has tempered expectations of aggressive policy easing by the Fed. U.S. JOLTS job openings rose from 7.839 million to 8.098 million in November, and the ISM Services PMI increased to 54.1 in December, indicating an acceleration in economic activity and rising prices.

Meanwhile, the ADP report showed that private-sector employment fell to a four-month low in December, signalling a potential cooling in the labour market. Investors are now focused on Friday’s December payrolls report for further insights into the state of the U.S. economy.

Driven by Trump’s policies and robust economic data, the U.S. dollar strengthened above the 109 mark, gaining 10% over the last three months.

Moreover, the strong rally in crude oil prices is impacting market sentiment. As the India meets 80% of its oil requirements through imports, the rise in crude prices has cascading effects on raw material costs and is likely to exert upward pressure on inflation numbers.

Continued selling by FPIs expected

Shriram Mutual Funds, in its latest report, anticipates that foreign portfolio investors (FPIs) will maintain a cautious approach toward Indian equities until there is clearer visibility regarding the recovery in Q3 FY25 earnings and fair market valuations.

Dr. V K Vijayakumar, Chief Investment Strategist, Geojit Financial Services, said, “With the dollar index at 109 and the 10-year bond yield at 4.67%, FIIs are likely to continue with their selling strategy, putting pressure on the market in the near term.”

“With the Q3 results season starting today, there will be market reaction to results. The results of TCS will give an indication of what is in store for the IT sector. The strength of the U.S. economy and the depreciation of rupee will be tailwinds for the IT sector. Premium segments like hotels, jewelry, automobiles catering to the premium market, and airlines are likely to report good numbers. Expectations from President Trump’s policy decisions and the Indian Union Budget proposals will keep the market volatile in the coming days,” he added.

Disclaimer: The views and recommendations given in this article are those of individual analysts. These do not represent the views of Mint. We advise investors to check with certified experts before taking any investment decisions.