FII selloff intensifies as foreign investors pull Rs 45,000 crore from Indian equities in six days

Foreign institutional investors have offloaded Rs 45,125 crore worth of Indian equities in the first six trading sessions of October, matching the entire outflow recorded during the previous month.

The selling marks 11 straight sessions of net foreign withdrawals since mid-September. The pace has caught Dalal Street off guard: the Rs 45,536 crore pulled out in September had already marked a sharp retreat, but October's run rate has doubled that pressure in a matter of days.

What is driving the foreign investor exit?

The immediate trigger sits in the United States debt market. Yields on 10-year US Treasuries climbed above 5.3 per cent—their highest level since early 2002—while 30-year paper touched 5.6 per cent. When guaranteed government bonds in the world's reserve currency pay more than 5 per cent, the calculus for holding volatile emerging-market equities changes quickly.

"So long as the US bond yields remain elevated, FPIs will continue to sell," said V.K. Vijayakumar, chief investment strategist at Geojit Investments. He noted that total foreign portfolio selling in Indian equities has reached Rs 3,60,952 crore so far this year, contributing to an almost 14 per cent decline in the benchmark Nifty.

Alongside bond yields, elevated Brent crude prices and persistent currency weakness have tightened the squeeze. Foreign investors holding mature large-cap stocks have seen returns eroded by a depreciating rupee, encouraging them to take profits and convert back into dollars.

Why IPOs are still attracting capital

Yet the headline exodus conceals an unusual divide. Even as foreign funds dump established shares on the exchanges, they are actively bidding for unlisted companies.

In September alone, foreign portfolio investors placed Rs 9,676 crore ($1 billion) into initial public offerings while pulling Rs 45,537 crore out of the secondary market. Across the year, while foreign funds have dumped nearly Rs 2.96 lakh crore on stock exchanges, they have channelled Rs 54,398 crore into primary market offerings.

Market participants say the difference comes down to pricing. Established large-cap shares on the Nifty and Sensex have traded at rich valuation multiples following multi-year rallies. Exiting them in bulk is easy because liquidity is high. New listings, by contrast, often come with entry discounts, fixed allocations, and direct exposure to sectors not heavily represented on the main indices, such as renewable energy components and electronics manufacturing.

Retail investors have adopted a similar pattern. After net purchases of Rs 42,774 crore in listed shares during the June quarter, domestic retail traders sold Rs 5,674 crore across July and August, redirecting over Rs 12,600 crore into initial share sales.

What investors are watching next

Dalal Street is now watching whether domestic institutions and retail mutual fund flows can continue absorbing the shock. SBI Securities analyst Sudeep Shah places immediate technical support for the Nifty around the 22,330 to 22,350 mark, warning that a slip below that band could expose the index to 22,200.

Any sustained turnaround, analysts agree, will require US Treasury yields to soften or Indian valuations to drop far enough to make the risk-reward equation tilt back in Dalal Street's favour.