FPIs ease equity sell-off, boost primary market bets in December

Year-end Christmas holidays may have slowed Foreign Portfolio Investors (FPIs) selling spree in Indian equities last week, while their robust investments in the primary market signalled continued confidence. 

They have till December 27 net sold ₹656 crore in Indian equities through stock exchanges. FPIs have so far this month invested ₹17,331 crore in the primary market. 

This took the net FPI investments in Indian equities this month as of December 27 to ₹16,675 crore, depositories data showed.

In calendar year 2024, FPIs have till December 27 net invested ₹1,656 crore in Indian equities, substantially lower than record ₹1,71 lakh crore crore net invested by them in previous year.

V K Vijayakumar Chief, Investment Strategist, Geojit Financial Services, said that the selling spree by FPIs seen in October 2024 and November 2024 has declined in December. 

“An important characteristic about FPI investment is that they have been consistent investors of equity through the primary market.

This trend of selling through the exchanges and buying through the primary market is discernible as a year-long trend in 2024”, he said. 

Vijayakumar highlighted that in 2024 till December 27, FPIs sold equity for ₹1,19,277 crores through the exchanges. In contrast to this selling trend they invested ₹1,20,932 crores through the primary market. The selling through exchanges is mainly due to the high valuations and investing through the primary market is mainly due to the fair valuations, he added.

In early 2025, FPIs may again turn sellers in equity since dollar has been appreciating ( dollar index is above 108) and the US 10-year bond yields are attractive at around 4.4 percent, he said. “FPIs will turn buyers in India when there are indications of growth and earnings recovery”, Vijayakumar said.

So far this calendar year, FPIs have recorded outflows in equities in five months —January, April, May, October and November.

FPIs pulled out a massive ₹1.16 lakh crore collectively in October and November 2024. October saw an unprecedented outflow of ₹94,017 crore — the largest monthly withdrawal on record.

Mixed views

There are mixed views on the outlook for 2025 as regards FPI inflows with many seeing a recovery.

Looking ahead to 2025, FPI flows into Indian equities could see a recovery, supported by a cyclical upswing in corporate earnings, particularly in domestic-oriented sectors like capital goods, manufacturing and infrastructure.

However, elevated valuations and cheaper alternatives in other emerging markets, such as ASEAN and Latin America, could constrain these inflows.

There are also few analysts who noted that strengthening US dollar and US 10-year yield could lead to further sell-off in Indian equities in early 2025.

Himanshu Srivastava, Associate Director – Manager Research, Morningstar Investment Research India, said that rich valuation, lower than expected corporate earnings for the September quarter, expectation of a subdued corporate results for the December quarter as well, high inflation prints, lower than expected GDP numbers and depreciating rupee doesn’t paint a very encouraging picture to uplift investor sentiments.

Also there continues to be ambiguity around the commencement of interest rate cut cycle in India which could also be keeping investors on the sidelines, he added.

FPIs Bullish on Indian Debt Markets

FPIs have shown a strong preference for Indian debt markets in 2024, investing ₹1.12 lakh crore, up from ₹68,663 crore in 2023.

This increased interest has been Fuelled by India’s inclusion in JP Morgan’s Government Bond Index, with expectations of further inclusion in other major global bond indices along with anticipated interest rate cuts by the US Federal Reserve.

India’s inclusion in Bloomberg bond index by January 2025 is expected to further boost FPI inflows in debt markets, said economy watchers.