Why do FPIs keep selling?

They were excited about India, even at much higher valuations 18 months ago, but the narrative has changed since

- AKASH PRAKASH

Selling by foreign portfolio investors (FPI) has continued almost nonstop since October 2024 — 18 months and counting. We have seen outflows of over $45 billion, and in the past month, this accelerated to nearly $1 billion on certain days. This amounts to almost 1 per cent of market capitalisation, exceeding the selling witnessed even during the global financial crisis (GFC). I have seen research from investment banks forecasting another $12-15 billion of possible selldown, based on prior metrics.

Foreign Investors are now seriously underweight India, with ownership at a 15-year low. India has underperformed emerging market (EM) equities by 5,000 basis points. Sentiment is extremely negative. Domestic flows remain robust.

Yet FPIs continue to sell. Why?

When I talk to peers across the world, the narrative is very similar. India is just too expensive. Even after the poor relative performance and multiple compression of the last 15 months, we trade at a 50 per cent premium to EM averages. Why pay 20 times for a market delivering only 10-15 per cent earnings growth? Why buy India when other markets like Korea or Taiwan have better earnings and are much cheaper? Indian return on equity is also no longer at a premium.

When asked why FPIs were so excited about India, especially at much higher valuations until just 18 months ago, what has changed? I get the following answers.