Dalal Street Sees Rs 1 Lakh-Crore Outflows From FIIs In Record Stretch As Warnings Loom

Foreign investors offloaded Indian stocks worth over Rs 1 lakh crore in a record selling spree amid warnings from two top brokerages, threatening the record 11-month rally.

Global funds have sold stocks worth over Rs 1 lakh crore in the last 18 consecutive sessions, according to provisional NSE data. The selling spree persists as growth slowdown, revival measures in China and valuation woes continue to hurt investor sentiments.

However, domestic institutions have been consistently buying on dips, snapping up stocks worth Rs 1 lakh crore, thereby cushioning from a major fall.

Domestic stocks were "tactically" downgraded to neutral from overweight by Goldman Sachs within its Asia/emerging market allocation, due to slower economic growth and corporate profits.

Worsening earnings sentiment, an accelerating pace of earnings cuts and a weak start to results season “indicate a flow-through to corporate earnings,” it said. High valuations and a less supportive backdrop could limit near-term upside, it said.

This downgrade comes after domestic stocks got downgraded to 'underweight' by Bernstein Research as it perceives the market to be "quite vulnerable" in the near term.

The concerns are driven by record high relative valuations to China and emerging markets, high crowding risk which has expanded into large-caps, and the increasing pace of downgrades, Bernstein said in a note.

Foreign investors pulled out a record amount of money from the Indian stock market in October, topping the outflow in Asia.

The outflows from the country are happening even as China begins a stimulus blitz—from interest rate cuts, to easing spending by local government—to revive the economy.

India's Nifty and the 30-stock Sensex are the sixth and tenth most expensive in the Asian market in terms of price-to-earnings ratio.

Indian stocks rebounded from a three–day decline on Thursday morning shortly after opening as HDFC Bank Ltd. and Sun Pharmaceutical Industries Ltd. lifted the key gauges.

The benchmark indices, NSE Nifty 50 and BSE Sensex, have fallen by about 6.94% and 6.63%, respectively, in the last 18 days after the key gauges hit fresh highs.

Foreign institutions have been net buyers of Rs 28,647 crore worth of Indian equities so far in 2024, primarily driven by inflows into primary marker, according to data from the National Securities Depository Ltd.

Meanwhile, Indian sovereign bonds that are eligible to trade on global debt indices saw their second weekly outflow last week, signalling overseas investors are cooling on the nation’s debt alongside equities.

The consistent selling of local stocks by foreign institutions has kept the rupee hovering near record-low levels. The local currency remained range-bound after hitting a record low of 84.09 on Oct. 11. On Thursday, the currency opened flat at 84.08 against the greenback.

Indian equities, long considered overvalued, are undergoing sharp corrections, returning to more realistic levels, according to Amit Pabari, managing director, CR Forex Advisors. "This is also fuelled by persistent foreign institutional investor outflows throughout the month."

Over the medium term, the Dollar Index is projected to fall to the 100-102 range as Fed is likely to cut rates by another 100 basis points in 2025, he said. "This limits the rupee's downside, especially with the RBI actively managing its depreciation around the 84.10 level."

Consequently, the rupee is expected to remain range-bound in the near term, Pabari said.