Cautious Approach by FPIs Amid Q3 FY25 Earnings Uncertainty

Foreign portfolio investors are exercising caution concerning Indian equities due to unclear Q3 FY25 earnings recovery and market valuations. Despite positive investments in early 2024, FPIs reduced their stakes amid a decline in forex reserves and the depreciating rupee, while domestic investors provided crucial market support.

Foreign portfolio investors (FPIs) are hesitating on Indian equities pending clarity on third-quarter FY25 earnings and market valuations, a report by Shriram Mutual Funds reveals. Despite considerable investment activity, FPIs are cautious, wary of the current economic scenario.

In 2024, FPIs maintained positive equity investment, yet it plummeted by nearly 99 percent compared to the previous year, ending with a cautious outlook. October saw FPIs selling equities worth Rs 91,934 crore—the highest monthly offload, while domestic institutional investors (DIIs) purchased Rs 89,740 crore in equities, showing significant market support.

Domestic investors played a pivotal role in stabilizing the market amidst challenges, though the Indian rupee reached a record low of Rs 85.8 per USD due to foreign outflows triggered by China's new stimulus measures. Meanwhile, India's forex reserves dropped by USD 4.112 billion at December's end. The report also warns of potential short-term market instability around the US Inauguration Day, January 20, 2025, due to uncertainty over policy changes post-Trump administration.

Global supply chain disruptions are leading businesses to advance orders, heightening market volatility—factors urging cautious optimism as markets navigate complex domestic and international conditions.

(With inputs from agencies.)