Foreign Investors Stay Sellers In October With Rs 24,548 Crore Outflow

Foreign investors were net sellers for the second consecutive month in October, due to a surge in the U.S. Treasury yields and the uncertain geopolitical tension from the Israel-Hamas conflict.

Overseas institutional investors offloaded $2,950 million, or Rs 24,548 crore, worth of stocks in October, according to data from the National Securities Depository Ltd. They had been buyers since March, after a selloff of Rs 28,852 crore in January and Rs 5,294 crore in February.

During the month, foreign portfolio investors offloaded stocks worth Rs 7,702.5 crore on Oct. 26, according to provisional data from the National Stock Exchange. That's the most so far this year.

There is a direct correlation between interest rates, the strengthening of the dollar, and foreign portfolio investment flows. Currently, both of these factors are pitted against emerging market flows, according to Vaibhav Sanghavi, chief executive officer at ASK Hedge Solutions.

Foreign investors have bought Indian equities worth Rs 95,971 crore so far this year, NSDL data showed.

HSBC Global Research expects the outflows to be only a short-term risk, given that the last eight years of data suggest that India has managed to attract its fair share of fund flows, even during years with strong mainland China inflows.

"2023 is unlikely to be very different, given that funds are underweight in both India and mainland China," the brokerage said in an Oct. 19 note.

The Indian equity market has been fairly resilient relative to the region, as there has been a very large and expanding domestic institutional base.

"We believe that DII flows (backed by strong flows into domestic mutual funds) will likely cushion any sharp market volatility and keep any market correction at a minimum until FIIs return to potentially drive another market rally," HSBC said.

Even after experiencing foreign fund outflows for the last two months, India is still the largest recipient of FPI flows so far this year among emerging markets. The FPIs were sellers in Thailand, Taiwan, the Philippines, Malaysia, Indonesia, and Vietnam, according to Bloomberg data.