Foreign investors are set to withdraw a record-breaking amount from Indian equities in October, diverting their focus towards China, where recent economic stimulus measures have sparked hopes of a recovery. So far, foreign portfolio investors have pulled out a net $8.4 billion from Indian stocks this month, surpassing the previous high of $8.35 billion recorded in March 2020, at the start of the COVID-19 pandemic.
Reasons Behind the Massive Outflows
Although foreign investors still hold over $1 trillion in assets within India, the outflows reflect a growing shift in global fund allocations. China’s recent monetary stimulus, announced in late September, has drawn investor interest as Beijing aims to boost its struggling economy. According to a Bank of America survey, many global fund managers are reducing their exposure to India in favor of China.
“India versus China remains the single most important question facing emerging market (EM) investors, and it is becoming harder to make this choice,” noted Viktor Shvets, head of global desk strategy at Macquarie Capital. Despite this, Shvets remarked that China’s appeal is more of a trading opportunity, while India remains the stronger long-term investment option.
China’s Market Reaction to Stimulus
Despite the initial optimism surrounding China’s aggressive stimulus measures, the rally in Chinese markets has largely fizzled out. The country’s blue-chip index has declined by 14% since peaking on October 8, as Beijing failed to provide details on the size and scope of its economic support. This has left many investors wary, even as China continues to steal attention away from India’s stock market.
India’s Market Performance and Earnings Misses
Meanwhile, Indian markets have struggled. The benchmark Nifty 50 has shed 5% since China’s stimulus was announced, with losses recorded in 11 out of 15 trading sessions in October. Adding to the gloom, several marquee Indian companies posted underwhelming September-quarter earnings, further weighing on investor sentiment. Tata Consultancy Services (TCS) and Reliance Industries, two of India’s largest companies, were among the notable disappointments.
Outlook for Indian Markets Amid Global Shifts
Analysts are uncertain about when the foreign sell-off will end, but the upcoming U.S. presidential election in November is expected to keep volatility high in Indian markets. “It’s difficult to predict when the foreign bleed-out will stop, but we expect volatility to continue,” said Narendra Solanki, head of equity research at Anand Rathi.
With the U.S. elections approaching on November 5, the outcome of the race between Democratic candidate Kamala Harris and Republican candidate Donald Trump could further influence global investment flows, including in emerging markets like India.
