Foreign portfolio investor (FPI) selling in Indian markets significantly decreased during October. This change in FPI behavior is due to reduced valuation differences between India and other global markets, alongside improved growth forecasts for India's economy.
Analysts noted this shift on Sunday. The previous high valuation gap that made Indian assets less attractive has narrowed. This follows a rally in other international markets and a period of consolidation within India.
Key Takeaways
- FPI selling in India slowed considerably in October.
- Reduced valuation differences made Indian markets more appealing.
- India's economic growth and earnings prospects improved.
- Foreign investors turned net buyers in the cash market during the last four sessions of the week ending October 10.
- Global market sentiment remains uncertain due to renewed US-China trade tensions.
Valuation Gaps and Economic Outlook Drive Shift
The primary reason for the slowdown in FPI selling involves two key factors. First, the valuation differential between India and other global markets had lessened. Previously, Indian markets were seen as expensive compared to their international counterparts. Recent rallies in other markets and a period of stability in India reduced this gap.
Second, market experts have upgraded India's growth and earnings projections. These positive revisions are influencing investor sentiment. The expectation is that government policies, such as Goods and Services Tax (GST) cuts and a low interest rate environment, will boost corporate earnings in the financial year 2027 (FY27).
"The growth and earnings prospects for India have been revised upward by market experts. The GST cuts and the low interest regime are expected to boost India Inc’s earnings in FY27, which the market will soon start discounting," said Dr VK Vijayakumar, Chief Investment Strategist, Geojit Investments Ltd.
FPIs Turn Buyers in Cash Market
Indicating this change, foreign investors became net buyers in the Indian cash market during the last four trading sessions of the week that concluded on October 10. During this period, cash market purchases by FPIs totaled Rs 3,289 crore.
Key Fact
Foreign Portfolio Investors (FPIs) bought Rs 3,289 crore worth of equities in the Indian cash market over four trading sessions ending October 10, signaling a positive shift in sentiment.
Global Headwinds and Geopolitical Factors
Despite the improved sentiment towards India, global market conditions remain uncertain. A renewed trade dispute between the United States and China has created negative sentiment. US President Donald Trump threatened to impose a 100 percent tariff on Chinese imports. He also considered restricting critical US exports to China.
Analysts believe that future FPI flows will largely depend on how this revived trade conflict develops. The ongoing geopolitical situation adds a layer of complexity to investment decisions.
Impact of Geopolitical Developments and Trade Deals
Recent global developments have also influenced market sentiment. The Nifty50 index saw an increase of 104 points, closing at 25,285 last Friday. This rise occurred amid improving global sentiment.
Global Context
Global market sentiment saw some improvement due to easing geopolitical tensions, specifically the initial stage of a ceasefire plan between Israel and Hamas. Progress in trade relations between India and the US also contributed to this positive outlook.
A significant factor was the agreement on the first stage of a ceasefire plan between Israel and Hamas. This eased geopolitical tensions. Additionally, signs of progress in a potential trade deal between India and the United States further boosted market confidence.
"Renewed FPI buying also boosted sentiment. Additionally, India and the UK announced multiple collaborations across sectors including education, critical minerals, climate change, and defence," stated Siddhartha Khemka, Head of Research, Wealth Management, Motilal Oswal Financial Services Ltd.
The announcement of several collaborations between India and the UK across various sectors, including education, critical minerals, climate change, and defense, also contributed to positive sentiment.
Future Outlook for FPI Flows and Indian Earnings
With the valuation differences becoming less pronounced and Indian corporate earnings expected to improve in FY27, foreign portfolio investors are likely to reduce their selling activity going forward. This suggests a more stable or even positive FPI flow into India in the near future.
September FPI Data
In September, sustained FPI selling was observed, with the total sell figure through exchanges reaching Rs 27,163 crore. However, FPIs also bought equity worth Rs 3,278 crore in the primary market during September. This aligns with a long-term trend of foreign investors participating in primary market offerings.
- September Selling: Rs 27,163 crore through exchanges.
- September Buying: Rs 3,278 crore through the primary market.
Upcoming Economic Data: India's Retail Inflation
Investors will closely monitor India's retail inflation data for September, which is scheduled for release on Monday. This macroeconomic indicator will provide further insights into the country's economic health and may influence future investment decisions.
