WHY FOREIGN INVESTORS ARE EXITING INDIA

FOREIGN Institutional Investors (FIIs) are offloading their holdings in India at a scale not seen in years.

- ARSHAD KHAN

Regarded as one of the key drivers of the locally listed equities, relentless selling by these investors has raised concerns about the health of the local market and the broader economy.

After selling equity worth ₹1.14 lakh crore through exchanges in October, FIIs have sold another 42,000 crores of equity so far in November. Before October, the peak selling by FIIs was seen in March 2020 when the Covid-19 pandemic spooked the global equity market.

They sold ₹65,816 crore worth of equity back then. According to market experts, many factors are driving this trend. They, however, are confident that FIIS will return to India, given the nation's long-term growth story remains intact.

Global factors at play

Shivani Nyati, head of wealth at Swastika Investmart, explains that there has been a shift of funds from India to China. The combination of perceived safety and growth opportunities in the US market, along with rising US bond yields and a strengthening dollar index, has influenced investor decisions, she notes.

A recent ICICI Direct report also states that one of the main reasons for the FII exit is the potential for higher returns from the Chinese market. FIIs seem to prefer moving to China as it is trading at less than half of India's valuations. In other words, these foreign investors find investing in Chinese equity markets is less expensive than pumping in money into Indian bourses. In September, the world's second-largest economy introduced a series of stimulus measures to boost its economy. Consequently, China saw FII inflows of $96 billion in September and the Chinese market benchmark surged more than 20% between September 18 and October 8.