October 2024 has proven to be a challenging month for the Indian stock market, as it has witnessed the highest selling pressure so far this year. This sell-off is driven by various global and domestic factors, which have left investors worried.
So, why are FPIs (Foreign Portfolio Investors) selling in the Indian stock market, and what does this mean for Indian investors? Let’s discuss the reasons behind this sell-off and explore the future outlook.
What’s Happening?
In October 2024, the sell-off by foreign portfolio investors (FPIs) in the Indian stock market raised concerns among investors. According to NSDL, as of October 22, 2024, equities saw outflows amounting to Rs 72,136 crore, marking the largest monthly sell-off to date. Although the market had been volatile since the start of 2024, with a January outflow of Rs 25,744 crore, there was some relief in February and March, where investments of Rs 1,539 crore and Rs 35,098 crore were recorded, respectively.
FPI inflows and outflows in the Indian equity market (January to October 2024).
This record outflow of Rs 72,136 crore in October alone has been alarming. After some recovery in June, July, and September — where September saw the highest inflow of Rs 57,724 crore — October’s sharp sell-off has reversed the trend. As a result, major indices like Nifty and Sensex have dropped by over 4% in October.
Why Are FPIs Selling Indian Stocks?
The expectation of minor interest rate cuts by the US Federal Reserve has attracted investors toward US markets. Additionally, weaker domestic Q2 earnings have impacted market sentiment. Although domestic institutional investors (DIIs) have invested over Rs 77,000 crore in October, providing some support to the market, it hasn’t been enough to offset the pressure.
High valuations, geopolitical tensions in West Asia, and a ‘Buy China, Sell India’ strategy have further fueled this massive FPI selling. According to Mint, many analysts believe that Indian stocks are still trading at high valuations, which do not align with their actual fundamentals. Moreover, the financial results of companies in the September quarter have not met expectations, shaking investor confidence.
What Does This Mean for Investors?
The record FPI sell-off has heightened volatility in the Indian stock market, creating a worrying environment for investors. However, if you are a long-term investor, this dip could present an opportunity. You might be able to enter fundamentally strong companies at better valuations during this downturn.
The market’s performance on October 22, 2024, was as follows: the Nifty Midcap 150 fell by 2.6%, the Nifty Smallcap 250 dropped by 3.7%, and the Microcap 250 slumped by 4.1%. Last week, the midcap index declined by 5.65%, while the smallcap index fell 6.45%.
What’s Next?
In its October bulletin, the Reserve Bank of India (RBI) has maintained a GDP growth forecast of 7.2% for FY25, suggesting that the slowdown in the second quarter is temporary. Experts believe that increased consumption during the festive season could boost the economy and improve corporate earnings.
However, as Mint reports, Dr V.K. Vijayakumar, Chief Investment Strategist at Geojit Financial Services, cautions that due to negative market sentiment, a quick and sustained recovery may be unlikely, although a reversal could happen at any time.
That’s it for today. We hope you’ve found this article informative. Remember to spread the word among your friends. Until we meet again, stay curious!
*This article is for informational purposes only. This is not investment advice.
*Disclaimer: Teji Mandi Disclaimer
