Indian stocks see record monthly foreign outflows as China takes spotlight

Foreign investors are on track to sell a record amount in Indian equities in October in absolute terms, as fund managers diverted their focus from richly valued local equities to China in hopes that Beijing's recent stimulus may boost its ailing economy.

Foreign portfolio investors have sold a net amount of $8.4 billion so far this month, surpassing the previous record outflow of $8.35 billion, recorded in March 2020 - the start of the COVID-19 pandemic.

The sales are the highest on record on a monthly basis, with available data going back to 2002.

However, the net sales are small in comparison to the more than $1 trillion in assets under the custody of foreign investors in the Indian market.

 

A Bank of America survey earlier this week said global fund managers were paring their India allocation in favour of China, following the country's pledge to significantly increase debt to revive its sputtering economy.

"India versus China remains the single most important question facing EM (emerging market) investors, and it is becoming harder to make this choice," said Viktor Shvets, head of global desk strategy at Macquarie Capital in a note.

Shvets, however, said that China was "mostly a trading, not an investment call, which still heavily favours India."

In late September, Beijing announced its most aggressive monetary support measures since the pandemic. Chinese markets spiked on the announcement, but that rally has largely fizzled out since then.

China's blue-chip index fell about 14% from its peak recorded on Oct. 8, as Beijing left out details such as the size of the stimulus package and left investors thirsty for more tangible stimulus announcements.

Since China's stimulus announcement, the benchmark Nifty 50 has shed 5%, logging losses in eleven of fifteen sessions.

The outflows were also triggered by the lacklustre September-quarter earnings of marquee large-caps, such as IT bellwether TCS and billionaire Mukesh Ambani's oil-focussed conglomerate Reliance Industries.

Analysts said these reasons spelled double trouble for investor sentiment.

Narendra Solanki, head of equity research fundamental at Anand Rathi, said, "It is difficult to say when the foreign bleed-out would stop, but expect the volatility to continue in the run-up to the U.S. elections."

Presidential elections in the United States are set to be held on Nov. 5, where Democratic candidate Kamala Harris faces off against Republican hopeful and former President Donald Trump.