Foreign Investors Scale Back Investments Amidst Global and Domestic Challenges

Foreign Portfolio Investors (FPIs) have significantly reduced their stakes in Indian equities, withdrawing a staggering Rs 22,194 crore by January 10. This move comes in the wake of a weak earnings season, the rising strength of the US dollar, and ongoing concerns over the tariff war during Donald Trump's presidency.

Following a Rs 15,446 crore investment in December, the sudden shift in FPI sentiment highlights the impact of global and domestic pressures on India's financial markets. Factors such as the anticipation of a weak earnings season, concerns over the tariff war, GDP growth slowdown, high inflation, and uncertainty over interest rate cuts in India have contributed to this trend.

Market Dynamics and Investor Sentiment

Experts point to the record-low levels of the Indian rupee, surging US bond yields, and the rich valuation of Indian markets as key reasons making Indian equities less attractive to foreign investors. The steady rise in the dollar index, now above 109, and the surge in the 10-year bond yield to above 4.6% are ensuring capital flows from emerging markets like India.

The overall trend indicates a cautious approach by foreign investors, who scaled back investments in Indian equities significantly in 2024, with net inflows of just Rs 427 crore. This contrasts sharply with the massive Rs 1.71 lakh crore net inflows in 2023, driven by optimism over India's strong economic fundamentals.