In October, foreign institutional investors in the Indian market recorded the highest monthly net outflow in history, while institutional investors in India bucked the trend and increased their positions and maintained net purchases for 14 consecutive months, setting a record inflow of 12.8 billion US dollars. Currently, India's performance in many key macroeconomic indicators is weak, and the central bank is still maintaining the benchmark interest rate at a high level.
On the 4th, the Indian stock market continued to fall sharply. The benchmark stock index, the Nifty 50 Index, fell 2% intraday, the biggest decline since October 3.
Since October, the market's enthusiasm for investing in India has reached a freezing point. The Nifty 50 Index fell 6.2%, the biggest drop since March 2020; MSCI India fell 7.7%, falling behind the Asia Pacific and Emerging Markets Index (MSCI APxJ/EM) of 2.8% and 3.3%.
In the current turmoil in the Indian market, the characteristics of a “reverse operation” of domestic and foreign investment have been shown. J.P. Morgan Chase pointed out in a research report on the 3rd that foreign institutional investors (FII) recorded the highest monthly net outflow in history, reaching 10.4 billion US dollars, while domestic institutional investors (DII) bucked the trend and maintained net purchases for 14 consecutive months. The inflow volume in October set a record of 12.8 billion US dollars, showing a “domestic capital takeover and foreign capital fleeing” situation.
Despite positive “takeover” from domestic investors, India's performance in a number of key macroeconomic indicators is weak. Currently, the Bank of India is still maintaining the benchmark interest rate at a high level, further increasing market concerns about future trends.
Large-scale withdrawal of foreign capital, the Indian market is “in turmoil”
According to the data, foreign institutional investors sold Indian stocks for a total amount of 10.4 billion US dollars in October, showing a sharp contrast compared to net purchases of 5.9 billion US dollars in September.
![Big](https://newsfile.futunn.com/public/NN-PersistNewsContentImage/7781/20241104/0-15450c7a31bf406b2fd45912e4dac2b0-0-f632b3b2d22e4e94f35de6a242e58347.png/big)
This wave of divestment has put pressure on the Indian stock market. In particular, large and medium capitalization stocks have all experienced varying degrees of decline.
Today, the benchmark stock index, the Nifty 50 Index, fell 2% intraday, the biggest drop since October 3; on Friday, the Nifty 50 Index closed at 24205 points, down 6.2% in a single month, making it one of the worst declines since 2020.
The analysis points out that the main reason for the FII divestment is weak profits of Indian companies and concerns that the Indian stock market is overvalued. In particular, some international capital is gradually shifting to other emerging market countries such as China, leading to a sharp outflow of capital from the Indian market.
At the same time, the Indian market is also facing multiple internal and external economic challenges, including inflationary pressure and slowing growth, which further weakens investor confidence.
Saurabh Mukherjea, chief investment officer at Marcellus Investment Managers in Mumbai, said:
“This is a fairly typical cyclical recession in India.”
According to August data, India's GDP grew 6.7% in the three months ending June, the slowest growth rate in five quarters. An economist at Nomura Securities said last month that India's “growth prospects no longer seem optimistic.”
Domestic capital “counterattacked”, the highest monthly net inflow in history
Against the backdrop of foreign capital sell-off, DII showed a strong will to “go to the bottom”.
According to J.P. Morgan Chase research data, in October, DII maintained net purchases for 14 consecutive months, with inflows reaching 12.8 billion US dollars, a record high in a single month, far exceeding 3.8 billion US dollars in September.
![Big](https://newsfile.futunn.com/public/NN-PersistNewsContentImage/7781/20241104/0-15450c7a31bf406b2fd45912e4dac2b0-1-74ef62f06c2459e85c4dc827881c7b74.png/big)
Furthermore,Mutual fundsThe net purchase of 10.4 billion US dollars in October was 3.9 billion US dollars; the insurance fund bought 2.4 billion US dollars of shares and sold 0.1 billion US dollars in September. Indian retail investors also bought 2.8 billion US dollars of shares in October, showing a significant increase in their holdings compared to the net sale of 1 billion US dollars in September.
Macroeconomic indicators are weak, and the Bank of India “faces difficult decisions”
Despite active “takeover” from domestic investors, India's overall economic situation is not optimistic. India's fiscal deficit in the first half of the fiscal year reached only 29% of the full-year target, down from 39% in the same period last year.
Furthermore, India's manufacturing and industrial production have also experienced a marked slowdown. J.P. Morgan believes that the global economic downturn is dragging down India's manufacturing exports, while domestic demand is also relatively weak, further limiting the growth of industrial production.
The Bank of India's latest resolution keeps the 6.5% benchmark interest rate unchanged, but domestic inflationary pressure has increased. Governor Shaktikanta Das said that the risk of interest rate cuts is too great now.
Mukherjea said:
“The Reserve Bank of India is facing a difficult decision, but I think they need to start cutting interest rates as soon as possible. With proper monetary and fiscal action, India should be able to get out of trouble by the end of 2025.”