FPIs continue to sell Indian equities aggressively. So far, FPIs have sold shares worth over Rs 2.92 lakh crore ($31.9 billion) in the current calendar year. That is the highest sales on record. In CY25, their sales totaled Rs 1.65 lakh crore ($18.8 billion).
The outflows are not showing signs of stopping. In the first 7 trading days of October, FPIs net sold equities totaling Rs 41,486.99 crore in the cash market. That marks a significant increase in selling compared to the Rs 45,536 crore net outflow in September.
Here’s why FIIs may want to pull out money from India: “A stronger dollar and higher US yields may raise the hurdle rate for emerging market equities. Foreign investors could face a double hit when the rupee weakens, which may generally prompt selling in expensive, FPI-heavy segments. FPI outflows have been part of the rupee’s story this year. Domestic SIP flows may continue to provide a buffer. However, in my view, sustained FPI selling could weigh on valuations until yields stabilize,” says Pandey.
👉Indian investors in US stocks: a weak rupee adds returns
For Indian investors in US stocks, any depreciation in the INR against the USD adds to returns. However, this should not be the only reason for an Indian to invest abroad. “For Indian investors with US assets, a stronger dollar can support INR-denominated portfolio returns, but currency should remain a secondary consideration. The underlying investment and its valuation should still drive the decision,” says Shah.
Wall Street’s leading indices, the S&P 500 and Nasdaq, sit near record highs. But three things could knock them in the medium term: weaker earnings against high expectations, a cooling in AI infrastructure spending, or the 10-year yield rising past 6%.
“This is a double-edged sword. Currency gains can reverse when the dollar turns. With US 10-year yields above 5.3%, valuation risk in US equities could be rising. In my view, investors may do well to treat currency as a source of volatility for now rather than a return driver,” adds Pandey.
👉Bottom line:
Indian investors should watch the rupee-dollar rate more than the DXY. The DXY tells you about the dollar’s global standing. The rupee-USD rate tells you what it means at home, for inflation, company profits and market stability.
Watch the 10-year US Government bond yield above all. If it climbs to 6%, as is being expected, Indian equities are likely to feel more pressure. Next is the rupee-dollar rate. It appears to have stabilized and strengthened for now. But further weakness in the rupee cannot be ruled out.
In the end, it comes down to two things: bond yields and the strength of the dollar. How these two indicators move over the next few weeks, if not months, will set the direction for equity market investors.
Article written by Sunil Dhawan
Source: Financial Express
Disclaimer: This article is for informational purposes only. It does not constitute investment advice or a recommendation to buy or sell any security or currency.
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