Foreign Outflows Explained: FPI Selling Not Alarming As Market Size Grows

Foreign investors broke their longest selling streak in Indian equities on Monday, Nov. 25, after selling a record Rs 1.5 lakh crore from the secondary markets, according to NSDL data.

Amid the selling, October also recorded the largest-ever monthly selling at Rs 1.14 lakh crore of net sells, surpassing the Rs 65,816 crore observed in March 2020.

That came as India's Sensex and Nifty fell more than 10% from their September highs, driven by concerns over foreign outflows and weak corporate earnings.

While the absolute figures seem staggering, the total outflows made up for less than 2% of the value of assets held by FPIs before the selling began.

Even as the net outflows stood larger than those during the Covid-19 sell-off, Indian markets have grown considerably since then, with the Nifty 50 doubling from pre-Covid levels.

Over the period, domestic institutional investors matched the selling by foreign investors, with net inflows of Rs 1.5 lakh crore, per provisional NSE data.

So far in 2024, DIIs have more than offset the FPI outflows with net inflows of Rs 4.78 lakh crore compared to Rs 1.2 lakh crore outflows from secondary markets.

This, along with the continued uptrend in Indian equities, suggests a reduced dependence on foreign investors. This is also reflected in a lower-than-historic correlation between monthly FPI flows and Nifty 50 over a trailing 12-month period.

A notable observation is that FPIs' asset value fell more than the market decline during the outflows and underperformed over a one-year period.

Assets held by FPIs fell 10.8% between Sept. 30 and Nov. 15, according to NSDL. Nifty 50 fell 8.73%, and the overall market cap of BSE-listed companies declined 9.27%.

Over a one-year period, FPIs' assets rose 27.5%, while the Nifty 50 rose 35.9%, and BSE-listed companies' market cap grew nearly 31%.