Why Foreign Funds Can’t Stop Selling Indian Stocks: A Comprehensive Analysis
Why Foreign Funds Can’t Stop Selling Indian Stocks: An Overview
In the past two months, foreign funds have sold over Rs 1-lakh-crore-worth of Indian stocks, with the total value of net sales reaching Rs 2 lakh crore since October last year. This trend of foreign fund selling has led to a significant decline in the stock market, with the Sensex plunging over 11,000 points from its September-end high near the 86,000 mark.
The Two Major Reasons Behind Foreign Fund Selling
Market players have identified two major reasons behind the foreign fund selling spree in India. Firstly, foreign funds are no longer attracted to the Indian market due to weak earnings growth and high valuations. Secondly, the falling value of the rupee has reduced the returns from dollar-rupee investments, making foreign funds less interested in the Indian market.
India’s Unattractive Profile to Foreign Funds
"India is just not attractive enough for foreign funds currently due to weak earnings growth, and demand. Lower returns in dollar terms due to the falling rupee is another factor," said Pratik Gupta, CEO & Co-Head, Kotak Institutional Equities.
Global Events That Have Changed the Landscape
The global events, including the Trump-driven turmoil and the resilience of the US stock market, have also played a significant role in altering the landscape for foreign funds. Many foreign funds have seen a surge in redemption requests from their clients, which has forced them to sell stocks to meet these redemption demands.
India’s Emergence as the Most "Ripe" Market for Foreign Funds
India has emerged as the most "ripe" market for foreign funds due to the post-pandemic D-Street rally. As a result, foreign funds have been selling Indian stocks at an unprecedented rate to meet redemption demands and adjust their portfolios.
When Will the Selling Stop?
While it is difficult to predict when the selling will stop, market experts believe that signs of consumption demand picking up, improvement in earnings outlook, or at least "reasonable" valuations could slow down the selling. Additionally, GDP growth above 6-7%, macroeconomic and rupee stability, and investor-friendly policies could also attract foreign investors back to the Indian market.
India’s Share in Foreign Fund Portfolio
Despite the significant selling, India’s share in foreign funds remains relatively small, with foreign investors holding about 16% of the Indian market cap, which is roughly $800 billion.
Conclusion
The foreign fund selling spate in India is likely to continue in the short term due to the two major reasons mentioned earlier. However, signs of consumption demand picking up, improvement in earnings outlook, or at least "reasonable" valuations could slow down the selling. India’s growth story is still intact, and the country has the potential to attract foreign funds if the macroeconomic and rupee stability improve.
Live News Daily is a trusted name in the digital news space, delivering accurate, timely, and in-depth reporting on a wide range of topics.