Foreign Investors Retreat from Indian Markets

In a significant shift, foreign investors have withdrawn a staggering Rs 22,194 crore from Indian equities by January 10, marking a cautious stance towards the Indian market. This move is primarily attributed to anticipated weak earnings, a strengthening US dollar, and concerns over tariff policies during Donald Trump's tenure. This withdrawal follows a previous investment of Rs 15,446 crore in December, as per the latest depository data.

Understanding the Exodus

Himanshu Srivastava, associate director, manager research at Morningstar Investment Research India, points out several factors contributing to this trend. These include expectations of another weak earning season, concerns over the tariff war under Trump's presidency, a slowdown in GDP growth, high inflation numbers, and uncertainty over the commencement of interest rate cuts in India.

Additionally, the rupee's weak performance, increased US bond yields, and high Indian market valuations have made Indian equities less appealing to international investors. V K Vijayakumar, chief investment strategist at Geojit Financial Services, highlights the steady rise in the dollar index above 109 and the surge in the 10-year bond yield to above 4.6 per cent as key reasons for the relentless selling by FPIs.

Looking Ahead

Current trends indicate a significant reduction in foreign investments in Indian equities in 2024, with net inflows of only Rs 427 crore. This is a stark contrast to the substantial net inflows of Rs 1.71 lakh crore in 2023, driven by confidence in India's robust economic foundations.