Foreign portfolio investors (FPIs) continued their selling spree in Indian equities for the seventh consecutive trading session on Tuesday, withdrawing an additional Rs 5,729 crore.
This brings the total outflow by FPIs over the past seven days to Rs 55,742 crore, with the heaviest single-day selloff occurring on October 4, when FPIs offloaded Rs 15,506 crore, according to data.
DIIs Offset FPI Selloff with Strong Buying
Amid the FPI exodus, domestic institutional investors (DIIs) have stepped in as net buyers, helping to mitigate the market impact. Over the same seven-day period, DIIs have purchased Indian shares worth Rs 60,206 crore. Despite their sustained buying, Indian stock markets have struggled to hold up against the selloff.
Market Performance: Nifty 50 and Sensex Slide
The selling pressure has contributed to a notable decline in the Indian stock markets. Over the last seven trading sessions, the Nifty 50 index dropped 4.4%, while the Sensex fell 4.6%.
On Tuesday, while FPI selling persisted, the pace of outflows moderated slightly. Market experts suggest this slowdown is partially due to profit booking in Chinese stocks, which has diverted some attention away from Indian equities.
What Drives FPI Selling?
The sharp FPI selloff has been largely driven by rising geopolitical tensions and their impact on global markets. The escalating conflict between Iran and Israel has led to a spike in crude oil prices, which, in turn, has raised concerns about potential inflationary pressures.
Higher oil prices could negatively affect India’s economy, leading to a shift in investor sentiment. Additionally, the relatively high valuation of Indian stocks has been another factor prompting FPIs to trim their positions.
China’s Economic Stimulus Diverts FPI Attention
At the same time, China has recently introduced a series of economic support measures aimed at revitalizing its slowing economy. These measures include cutting banks’ reserve requirements and key lending rates.
As a result, FPIs have begun redirecting funds to Chinese stocks, anticipating a recovery in China’s economy and an improvement in corporate earnings following these stimulus efforts.
Domestic Investors Remain a Stabilizing Force
Despite the ongoing FPI outflows, the steady buying by DIIs, supported by robust retail investor participation, has provided stability to the Indian stock markets.
This pattern of domestic investment has historically helped counterbalance the volatility caused by foreign outflows, ensuring the resilience of Indian equities even in the face of global economic uncertainties.