As of December 23, 2024, foreign portfolio investors (FPIs) have turned net sellers in Indian equities, pulling out ₹976 crore this week amid a strengthening U.S. dollar and rising U.S. 10-year bond yields. This recent withdrawal follows a trend where total FPI investment in December reached ₹21,789 crore, indicating some level of confidence in India's economic growth despite the current market fluctuations. Notably, FPIs had invested ₹3,126 crore in the first two trading sessions of December but offloaded over ₹4,102 crore in the subsequent sessions, leading to an overall net outflow for the week of ₹976 crore. [6b35b5f7][09960ac2]
The cautious approach from FPIs is attributed to several factors, including the recent meeting of the U.S. Federal Reserve, which cut rates by 25 basis points but signaled fewer future cuts. This uncertainty surrounding U.S. monetary policy has contributed to a more cautious sentiment among investors. Additionally, concerns about high valuations, weak corporate earnings, rising inflation, and a depreciating rupee have further impacted market sentiment. Himanshu Srivastava from Morningstar noted that investor sentiment remains cautious due to these factors, while VK Vijayakumar from Geojit Financial Services highlighted the impact of a strong dollar and slowing growth concerns in India. [6b35b5f7][09960ac2]
In the broader context, foreign direct investment (FDI) inflows into India have crossed the $1 trillion mark from April 2000 to September 2024, reaching $1,033.40 billion. Major contributors include Mauritius, Singapore, and the United States, with key sectors benefiting from this investment being services, computer software, telecommunications, and pharmaceuticals. The manufacturing sector alone attracted $165.1 billion, reflecting significant growth driven by government initiatives. [5d0c04d1]
Conversely, China's FDI inflow showed a 6% increase in November 2024 compared to the previous year, although it represented a year-on-year decline of 27.9%. Despite this, 52,379 new foreign-invested enterprises were established in China, marking an 8.9% increase year-on-year. This indicates a shift towards more advanced industries, particularly in high-tech manufacturing. [ec5a0a7d]
The Indian stock market has faced challenges with FPIs withdrawing ₹1.55 lakh crore since October 1, 2024. This includes a record ₹1.14 lakh crore sold in October and an additional ₹42,000 crore in November. Analysts have noted a shift of funds from India to China, where investors perceive greater safety and growth opportunities. [3e2f2953][6b7cf3e5]
Despite the recent outflows, domestic institutional investors (DIIs) have been actively buying, investing ₹37,559 crore in November and ₹107,254 crore in October, which has helped cushion the impact of FPI withdrawals. The Indian market's median price-to-earnings (PE) ratio stands at 21.9, raising concerns about overvaluation as earnings growth for Q2 FY25 is reported at a mere 3.6%, the slowest growth in 17 quarters. [54088d9e]
The BSE Sensex is currently trading at 77,026.53, down 10% from its peak in September 2024, while the Nifty index has also seen a decline of 10.44%, now at 23,407.30. Market experts predict that the Nifty may settle between 22,200 and 23,000, reflecting a cautious outlook. [4baedea9]
Investor sentiment is further impacted by the upcoming Maharashtra assembly elections, with predictions suggesting a favorable outcome for the BJP-led coalition. Current valuations of the Nifty50, at 20.6 times trailing 12-month earnings, raise questions about whether this is a suitable time for investment. [54088d9e]
Looking ahead, Morgan Stanley has predicted that the Sensex could reach 93,000 by December 2025, driven by improving global conditions and potential U.S. Federal Reserve rate cuts. VK Vijayakumar notes that while there is reduced FPI interest in large-cap banking stocks, the potential for growth remains. [db31cf75]