Foreign investors withdrew a massive Rs 94,000 crore (around $11.2 billion) from the Indian stock market in October, making it the worst month on record in terms of outflows triggered by the high valuation of domestic stocks and the attractive valuations of Chinese stocks.

Prior to this, foreign portfolio investors (FPIs) had withdrawn Rs 61,973 crore from stocks in March 2020. The latest capital outflow came after a record nine-month investment of Rs 57,724 crore in September 2024.

According to depository data, FPIs have been steadily buying shares since June after withdrawing Rs 34,252 crore in April-May. Overall, REITs have been net buyers in 2024 except for January, April and May.

Looking ahead, the trajectory of global events such as geopolitical developments, interest rate movements, progress in the Chinese economy, and the outcome of the U.S. presidential election will play a crucial role in shaping future foreign investments in Indian equities, Himanshu Srivastava, associate director and manager. Research, Morningstar Investment Research India, said.

Domestically, key indicators such as the trajectory of inflation, corporate earnings and the impact of demand during the festive season will also be closely watched by REITs as they assess the opportunities in the Indian market, Srivastava added.

As per the data, FPIs recorded a net outflow of Rs 94,017 crore in October. The intensity of net outflows could be gauged from the fact that barring one day, FPIs were net sellers throughout the month, bringing their total investment for 2024 down to Rs 6,593 crore. This resulted in benchmark indexes falling about 8 percent from their peaks.

Several factors contributed to this massive withdrawal of foreign capital from Indian equity markets in October.

Chief among them is the high valuation of Indian stocks. This has triggered a shift in investment to China, where valuations are currently more attractive. In addition, a series of stimulus measures aimed at supporting China’s economic growth has made Chinese stocks increasingly attractive to global investors, Srivastava said.

Despite the massive FPI sell-off in the financial sector, this sector is resilient as valuations are fair and every sale is absorbed by DIIs and individual investors, especially HNIs, said VK Vijayakumar, chief investment strategist at Geojit Financial Services.

Besides, FPIs withdrew Rs 4,406 crore from the general debt limit and invested Rs 100 crore from the voluntary debt retention (VRR) route during the period under review.

So far this year, FPIs have invested Rs 1.06 lakh crore in the debt market.