Foreign investors have been offloading Indian stocks at an unprecedented pace, with net outflows reaching over $7 billion by mid-October, marking the highest monthly selloff since March 2020. This selloff comes as investors redirect funds towards China, where a series of stimulus measures have revitalized market sentiment and prompted a shift away from other Asian markets, including India.
China’s Stimulus Spurs Portfolio Rebalancing
China’s recent aggressive stimulus has sparked renewed investor interest, drawing capital away from India and other regional markets. The exodus of foreign funds contrasts with purchases by local investors, who have poured nearly $7.2 billion into Indian equities during the same period. However, despite this local buying support, sentiment is shifting negatively as the rally in Indian stocks loses steam.
Changing Sentiment Towards Indian Equities
The shift in investment sentiment is evident in the latest BofA Securities survey, where the number of bullish investors on India is now equal to the bears, effectively neutralizing the earlier overweight stance. This is a stark reversal from July, when optimists outnumbered pessimists by a net 32 percentage points. The gap in allocations between India and China has narrowed significantly, reflecting the redirection of funds.
Implications for Indian Markets
With international investors pulling out and sentiment cooling, Indian markets may face headwinds, especially if outflows persist. The recent moves highlight the interconnected nature of global markets, where shifts in policy and economic outlooks in one region can swiftly influence capital flows elsewhere.
Conclusion
The ongoing foreign outflows from Indian equities underline the impact of global portfolio rebalancing, driven by China’s stimulus efforts. While local investors have stepped in to counter the selloff, the changing sentiment and narrowing gap in allocations could pose challenges for India’s markets in the near term.
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