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The Indian stock market experienced a significant downturn in October 2024, as foreign portfolio investors (FPIs) pulled out a record Rs 94,000 crore (approximately $11.2 billion) from the market. This marked the largest monthly outflow ever recorded, surpassing the previous record of Rs 61,973 crore set in March 2020, at the onset of the COVID-19 pandemic. The outflows came after a robust period of investment in September, where FPIs had bought Rs 57,724 crore, boosting investor confidence. However, October saw a sharp reversal, with FPIs selling nearly every day, wiping out much of the year's gains and reducing net foreign investments in equities to just Rs 6,593 crore.
Analysts attribute the FPI exodus to a combination of factors, primarily the high valuations of Indian stocks. With the Chinese market offering relatively more attractive valuations, FPIs are seeking to diversify their portfolios. The recent economic stimulus measures implemented by the Chinese government have also played a role in drawing foreign investors, further intensifying capital outflows from India. These developments have created a challenging environment for the Indian stock market, with benchmark indices experiencing an 8% decline from their peaks. The pressure on the market is likely to persist as long as valuation concerns remain and investors perceive greater opportunities in other markets.
While the situation in the equity market is concerning, the debt market has seen a more stable performance. FPIs withdrew Rs 4,406 crore from the general debt category but invested Rs 100 crore through the Voluntary Retention Route (VRR). Overall, foreign investment in the debt market has reached Rs 1.06 lakh crore this year. While the equity market is facing significant headwinds, it is important to note that foreign investment in India's debt market remains strong. This suggests that investors continue to view the Indian economy favorably, albeit with cautious optimism in the short term. The future trajectory of the Indian stock market will depend heavily on factors such as valuation adjustments, global economic developments, and the performance of other emerging markets.