FPI selling in Indian equities hits over 3-mth highs on rich valuations, China reopen

Foreign portfolio investors (FPIs) offloaded Indian equities worth 150.68 billion rupees ($1.85 billion) in the first half of January, the most since the end of September 2022, data from National Securities Depository Ltd. showed.

The selling coincided with a slide in equity benchmarks, with Nifty 50 NIFTY falling nearly 1% between Jan. 1 and Jan. 15, 2023.

Analysts flagged multiple reasons for the FPI selloff - expensive valuations due to the recent outperformance of Indian equities over their global peers, reallocation of funds to China and Taiwan for their relatively cheaper valuations, the reopening trade in China and global growth concerns.

In his latest weekly GREED & fear newsletter, Christopher Wood of Jefferies noted that the larger theme in Asia was China and its reopening. Even if India's demand story remained "rock-solid", he wrote, the high valuations were a "challenge".

The global brokerage firm had cut India's weighting in the Asia Pacific ex-Japan return portfolio by half a percentage point while raising China's weightage by one percentage point.

WHAT FOREIGN INVESTORS SOLD & BOUGHT

Among sectors, foreign investors sold off 67.01 billion rupees worth of shares in financials, followed by 34.57 billion rupees in IT and 28.25 billion rupees in oil & gas consumable fuels.

Metals was the only major sector that saw renewed interest from foreign investors, who bought 25.18 billion rupees worth of equities. China is the world's largest consumer of metals, and the reopening after the lifting of stringent COVID restrictions is expected to boost metals demand in India and the world.

Along with the FPI selloff, analysts also point to another factor contributing to market volatility. "Earnings for the December quarter will add to the market volatility in the near term," said Shrikant Chouhan, head of equity research (retail) at Kotak Securities.

($1 = 81.3300 Indian rupees)