FPI selloff surges past $9.25 billion in October, ‘Sell India, Buy China’ trade set to persist

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FPIs aggressively sold Indian equities, withdrawing a record ₹77,701 crore ($9.25 billion) up to October 18, depositories data showed. They have been net sellers in all 13 trading sessions this month.

This marks a sharp contrast to September 2024, when FPI inflows reached a nine-month high of ₹57,724 crore.

October’s massive FPI outflows are driven by high domestic valuations, global risk factors, and a shift towards the more attractive valuations in the Chinese market.

Mixed global cues and slowing earnings growth in Corporate India in September quarter had accelerated the FPI shift away from Indian equities in the last few weeks, say market observers. 

FPI outflows amounting to $9.25 billion have, in effect, offset the record overall inflows of ₹1,00,245 crore (approximately $12 billion) observed between January and September this year, reducing the total net FPI investments for the calendar year to ₹22,909 crore, according to depositories data. 

The heavy FPI selling so far in October —the highest in a calendar month —have however been largely absorbed by the Domestic Institutional Investors (DIIs) led by mutual funds, who are still sitting on good pile of cash waiting to be deployed at lower market levels. 

Indian equity benchmark indices saw red for the third consecutive week last Friday, clocking its longest losing streak of 2024. 

While Nifty this past week was down 0.5 percent, mid cap index was down 0.9 percent. However Small cap index was up 0.5 percent and bank nifty 1.8 percent during the past week. 

V K Vijayakumar, Chief Investment Strategist, Geojit Financial Services said “This month, through October 18, FPIs have sold equity for ₹ 77701 crores. Selling through the exchanges has been higher at ₹ 83082 crores( NSDL). This massive selling caused a correction of about 5 percent in Nifty, but didn’t have a serious impact on the market since  almost the entire FPI selling has been absorbed by DIIs, who are receiving sustained fund inflows”.

This trend of FPI selling and DII buying is likely to sustain in the near-term, he said, adding that the rationale behind FPI selling is the elevated valuations in India and the cheap valuations of Chinese stocks, which the FPIs have been buying aggressively since mid September. 

“This “Sell India, Buy China” is most likely to be a short-term tactical trade; but it can run for some more time, given India’s elevated valuations”, Vijayakumar added.

Meanwhile, on the debt markets, FPIs inflows remained sluggish at ₹ 3,160 crore during October 1-18. This was lower than the net FPI inflows of ₹ 22,959 crore in debt markets in September 2024.