India's Record Equity Outflows In October Highest In Asia As Valuation Woes Hold Firm

Foreign investors pulled out a record amount of money from the Indian stock market in October, extending their selling spree as they remained cautious about the high valuations of local stocks.

Foreign institutional investors have been net sellers for the 16th consecutive day and have offloaded nearly Rs 93,500 crore since Sept. 27, according to provisional data from NSE.

This grievous outlook has caused Indian stocks to see the most outflows in Asia. The quantum of inflows into China cannot be ascertained as the nation has stopped publishing details of foreign flows.

So far in October, global funds have offloaded nearly Rs 82,500 crore, the highest-ever outflow in a single month. The previous highest monthly outflows of Rs 61,973 crore were seen during the Covid-19 selloff in March 2020.

The outflows seen in the country are commensurate with the beginning of the stimulus blitz seen in China—from interest rate cuts to easing spending by local government—to revive the economy.

However, domestic institutions have cushioned the foreign outflows, having mopped up most of the selling by global funds. Indian funds have bought stocks worth Rs 90,900 crore, as per data from NSE.

The benchmark indices, NSE Nifty 50 and BSE Sensex, have fallen by about 5.56% and 5.33%, respectively, in the last 16 days after the key gauges hit fresh highs.

This trend of FII selling and DII buying is likely to sustain in the near term, according to V K Vijayakumar, chief investment strategist, Geojit Financial Services Ltd.

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, Vijayakumar said. This 'sell India, buy China' is most likely to be a short-term tactical trade, he said. "But it can run for some more time, given India’s elevated valuations."

The mid-cap benchmark is valued over Nifty 50 and the small-cap stocks continue to gain more despite froth concerns. The price-to-earnings ratio of the Nifty is valued at 19.2, while that of the small-cap and the mid-cap index is at 33.3 and 44.4, respectively.

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

Investors in Indian stocks might be in for more turbulence as India Inc. will likely post muted earnings for the second quarter. The weak topline may weigh on profits, and the earnings slowdown seen in the first quarter is likely to persist in the second quarter, according to Nuvama Institutional Equities.

Global investors are wary of developments in China and the outcome of the US elections currently, Ajay Srivastava, chief operating officer, Dimensions Consulting, told NDTV Profit. Foreign institutional investors are shifting from equities to gold, and commodities, he said. "Pullback in Indian equities should continue till prices become reasonable."

Concerns about a slowing economy also weighed global funds as the tax collection saw a dip last month. Gross Goods and Services Tax collection growth in September reached 6.5%, marking a 40-month low. The output growth of the eight core sectors declined in the latest reading.

However, foreign institutions have been net buyers of Rs 17,765 crore worth of Indian equities so far in 2024, primarily driven by the inflows into the primary market.