Foreign exodus from India stocks threatens to reduce key support

Indian stocks are facing the longest run of foreign outflows in five years, an exodus that’s stalling the market’s steady surge from pandemic lows in March 2020.

Foreign institutional investors have been net sellers every month since September, dumping $7.9 billion worth of local shares since. The four-month streak of withdrawals is set to be the longest since January 2017, data compiled by Bloomberg show. The benchmark S&P BSE Sensex is down about 7% since hitting an all-time high in mid-October.

The selloff has intensified amid the recent global equity rout sparked by concerns that the Federal Reserve will tighten monetary policy more than expected. Overseas funds have sold more than $3 billion of Indian shares this month alone through Jan. 25, according to the latest available data, most since March 2020.

 

“Indian stocks have outperformed global indexes by a bigger margin,” said Amit Kumar Gupta, a fund manager with Adroit Financial Services Pvt. “It makes sense for investors to take out some money after such an unprecedented rally.”

Supercharged by record low interest rates and a retail investing boom, the Sensex more than doubled in value from the lows seen back in March 2020 -- the best rally for any major equity benchmark. It is still up about 120% from those levels, outstripping the MSCI All Country World Index by about 40 percentage points.

Foreigners held a 20.9% stake in NSE Nifty 500 companies last month, the lowest since June 2020, according to Gautam Duggad, an analyst with Motilal Oswal Financial Services Ltd. in Mumbai. Their exposure to financial companies fell to 35% from 45.2% a year ago, Duggad wrote in a note.