FPI Selling Continues; ₹64,000 Crore Withdrawn in January

Foreign Portfolio Investors (FPIs) have continued to pull out funds from Indian equity markets, withdrawing ₹64,156 crore ($7.44 billion) in January. This follows a modest investment of ₹15,446 crore in December. The main reasons for the outflows include a weaker rupee, rising US bond yields, and expectations of a weak earnings season for Indian companies.

Factors Driving FPI Selling

The continued selling is due to several global and domestic factors. The rupee’s depreciation is a key pressure point for foreign investors. Additionally, the high valuation of Indian equities, despite recent corrections, combined with macroeconomic challenges, has made investors cautious.

The unpredictability of US policies, especially under Donald Trump, has also contributed to a risk-averse sentiment among investors.

Sector Impact and Debt Market Selling

The financial sector has faced the brunt of FPI selling, as this sector holds a large portion of its investments. However, the IT sector saw some buying, driven by improved prospects and positive company comments. FPIs also reduced their exposure in India’s debt market, withdrawing ₹4,399 crore from the debt general limit and ₹5,124 crore from the debt voluntary retention route.

2024 Sees Significant Withdrawal Compared to 2023

In 2024, FPIs have been significantly cautious, with net inflows amounting to just ₹427 crore. This contrasts sharply with the previous year, when FPIs had invested a record ₹1.71 trillion in Indian equities, driven by optimism about India’s economic strength.

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