Why are foreign investors leaving India and running towards China?
#News Bureau February 25,2025
Why is the Indian stock market falling? Since October 2024, the Indian stock market has lost $1 trillion, while the Chinese market has gained $2 trillion. China’s Hang Seng index has risen by 16% in just one month, while India’s Nifty has fallen by more than 2%. So are foreign investors from India fleeing to China or is the situation something else?
In fact, the Indian stock market has been struggling for the last few months. The Sensex has fallen by about 12 percent since October last year. In the last six months, the Sensex and Nifty have fallen by 9% and 10% respectively. It is being said that this decline has come because foreign investors are withdrawing their money from the Indian stock market on a large scale. The reports that are coming confirm this.
Foreign institutional investors (FIIs) have withdrawn about $25 billion since the market peaked in September. This happened when there are concerns about high valuations in the stock market and slowing economy. According to a report, FIIs’ selling in the Indian stock market continues. After selling shares worth Rs 81,903 crore through exchanges in January, FIIs sold shares worth Rs 30,588 crore this month till February 21.
So the question is where are foreign investors taking the money they have withdrawn from the stock market? The answer to this question is also found in why they are withdrawing money?
Foreign investors are withdrawing money from Indian stocks for various reasons. These include slowing down of India’s GDP growth rate, weak results of companies, increase in treasury yields in the US, strong economic growth in the US and rise in the dollar. Due to better returns in the US market, FIIs are preferring to invest there instead of emerging markets like India. Meanwhile, China’s stock market has also made a strong comeback. This has made Indian equities look comparatively less attractive.
The entry of Chinese AI deepseek, relatively cheap valuations of Chinese companies, good performance of firms like Alibaba and Lenovo are making FIIs show renewed interest in China.
According to a report by Live Mint, Vinod Nair, Head of Research at Geojit Financial Services, said, “‘Sell India, Buy China’ strategy continues to pay off. The market mood is cautious, pessimistic sentiments are likely to persist until corporate earnings improve significantly and a conducive environment is created with easy global liquidity and stable currency.”
Big decline in FDI too
FDI i.e. Foreign Direct Investment is also an indicator showing the economic condition of the country. It has declined significantly in recent months. This means that FDI investors have lost confidence in earning profits from the Indian economy. There has been news of a record decline in FDI. Net foreign direct investment i.e. FDI inflow into India fell to a 12-year low in the April to October period of this financial year compared to the same period of previous years.
RBI data shows that net FDI inflow into India declined to $14.5 billion in April-October 2024, the lowest since 2012-13. Then it was $13.8 billion. Net FDI from 2012-13 to 2023-24 has been slowing down year after year since the pandemic. Net FDI stood at $34 billion during the April-October period of 2020-21, declining to $32.8 billion in 2021-22, $27.5 billion in 2022-23 and $15.7 billion in 2023-24.
While foreign companies appear to be moving away from India for investments, it seems Indian companies are doing the same. Foreign investments by Indian companies in April-October 2024 rose to $12.4 billion, the highest since at least 2011-12. This is a 55 per cent increase over the same period last year.
According to Dr V K Vijayakumar, Chief Investment Strategist at Geojit Financial Services, the biggest concern for the Indian markets is the continued selling by FIIs. “The sharp surge in Chinese stocks is another near-term challenge,” he said, as reported by India Today. Kranthi Bathini, Director, Equity Strategy at Wealthmills Securities, also pointed out that the China market has become more attractive for investors in the short term. However, despite the strong rally in Chinese stocks, not all experts believe the trend will last long.
