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Foreign Portfolio Investors' (FPIs) Exodus Continues in January 2025

 

The new year has begun on a challenging note for the Indian equity markets, as Foreign Portfolio Investors (FPIs) continue their relentless selling spree. Here’s a detailed breakdown of the developments and their implications:

FPI Outflows in January 2025

FPIs withdrew a staggering ₹64,156 crore (USD 7.44 billion) from Indian equities in January (till January 24). The only exception was January 2, when there was net buying activity.

Reasons Behind the Sell-Off

Depreciation of the Indian Rupee has created unfavorable conditions for foreign investors. The rise in US bond yields, offering more attractive returns, has also prompted a reallocation of investments. Indian equities, despite recent corrections, are perceived as overvalued. Global macroeconomic challenges, including expectations of a tepid earnings season, have further dampened sentiment. Additionally, uncertainty stemming from Donald Trump’s unpredictable policies has made investors cautious about riskier markets like India.

Sectoral Impact

The financial sector has been the hardest hit, as it constitutes a significant portion of FPI investments. In contrast, the IT sector has seen some buying activity, driven by positive management outlook and improved sector prospects.

FPI Activity in the Debt Market

FPIs have withdrawn ₹4,399 crore from the debt general limit and ₹5,124 crore from the debt voluntary retention route. Rising US bond yields have made debt instruments in India less attractive.

Comparison with Previous Years

In 2024, FPIs were cautious, with a mere ₹427 crore in net inflows, marking a sharp decline compared to ₹1.71 lakh crore net inflows in 2023. The value of equity assets under FPI custody dropped from USD 930 billion in September 2024 to USD 851 billion in November 2024, a reduction of 8.6%.

Broader Implications

The sustained outflows underscore foreign investors' cautious approach amid global and domestic uncertainties. While optimism drove record inflows in 2023, concerns over valuation, macroeconomic headwinds, and geopolitical risks are impacting investor confidence. The financial sector, being a major driver of the economy, is bearing the brunt, which could weigh on overall market performance.

Conclusion: The Path Ahead

The persistent FPI outflows are a reflection of both external and internal challenges facing the Indian economy. Policymakers need to focus on stabilizing the rupee, ensuring macroeconomic stability, and addressing sector-specific concerns to rebuild investor confidence.

As global markets remain volatile, a cautious approach from FPIs may persist until there is greater clarity on interest rates, geopolitical developments, and earnings growth.

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