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Benchmark indices shed 1.8% in January as FPIs offload Rs 34,841 crore

The current wave of FPI selling began in October after China's stimulus measures propelled its markets, which were trading at much cheaper valuations than India

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Illustration: Binay Sinha

Sundar Sethuraman Mumbai

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A combination of concerns about corporate earnings, uncertainty about rate cuts in the US, and strengthening US dollar and bond yields has nudged foreign portfolio investors (FPIs) to continue with their selling in Indian equities in 2025. Till January 14, FPIs have been net sellers of shares worth Rs 30,307 crore. On Wednesday (January 15), FPIs were net sellers worth Rs 4,534 crore, according to provisional data from exchanges. The selling has pulled down the benchmark Nifty and Sensex by 1.8 per cent on a Year-to-Date (YTD) basis.
 
The current wave of FPI selling began in October 2024 after China's stimulus measures propelled its markets, which were trading at much cheaper valuations than India. Consequently, some foreign investors shifted funds from India to China.
 
 
Rising US bond yields and the strengthening of the dollar after Donald Trump's victory in the US presidential elections raised expectations for expansionary fiscal policies and buoyed demand for US debt securities.
 
Since the end of October 2024, the 10-year US bond yield has risen by 47 basis points (bps) and is now trading at 4.76 per cent. During the same period, the dollar index rose by 5 per cent and is trading at 109.13.
 
Underwhelming earnings reports from Indian companies for the July-September quarter of the current financial year (Q2FY25) and fears that the December quarter (Q3) would turn out to be similar exacerbated the FPI selling.
 
“If you leave aside the financial crisis and Covid-19, we are witnessing the steepest downturn in corporate earnings we have seen in a while. And, it is coming at a time when the market is trading at elevated valuations. Naturally, we are bound to see the reaction from foreign investors," said Saurabh Mukherjea, founder and chief investment officer (CIO) of Marcellus Investment Managers.
 
The rupee has depreciated 2.6 per cent against the dollar in the same period and is now trading at 86.36. Analysts said the rupee, if it depreciates further, could push FPIs to exit their positions faster than anticipated.
 
“FPIs may advance their selling positions so that they do not lose more from rupee depreciation,” said Ambareesh Baliga, independent equity analyst.
 
The recent rise in oil prices following a new wave of US sanctions against Russia's energy industry has compounded investor concerns. The Brent crude is now trading at $81.8 per barrel, having reclaimed the $80 mark this year after three months.
 
The FPI pullout is unlikely to slow down as the factors worsening the selloff persist.
 
"With the dollar now strengthening against every currency in the world, the depreciation of the rupee adds a third variable. The earnings slowdown still has some way to run, and the Indian market is still richly valued, and the dollar has some bit to run. The FPI selloff still has more legs in it,” said Mukherjea. 
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First Published: Jan 15 2025 | 10:42 PM IST

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