Foreign Investors Leaving Indian Stock Markets for China: What’s the Reason?

Indian Stock Market Correction and FPI Exodus

Indian stock market indices, Sensex and Nifty, have significantly dropped from their lifetime highs. Investors have lost several lakh crore due to this market correction. Foreign portfolio investors (FPIs) have been continuously withdrawing money for several months now.

FPIs have continued their exodus from Indian stock markets in early March as well, with substantial selling in the information technology and consumer goods sectors. This reflects worries about economic conditions in both the United States and India.

• In the first half of March 2025, FPIs have net sold Indian stocks worth $3.5 billion.
• The technology sector has seen net $803 million outflows.
• The consumer sector stocks have experienced $591 million offloading.
• Foreign investors have withdrawn approximately $29 billion from Indian equities since October, marking the largest outflow in any six-month period.

Where are Foreign Investors Shifting Their Money To?

This money has moved towards China, where the Hang Seng Index in Hong Kong, has risen as much as 36% since late September. The inflows have come as a result of artificial intelligence investments centred around Chinese venture DeepSeek, says a Reuters report.

Foreign investors are shifting their investments to Chinese equities at an unprecedented rate from India, which is a big shift in investment patterns between these two major Asian economies over the past six months.

Reasons for the Shift

• China’s relatively low valuations and anticipated economic uptick.
• China’s focus on growth supporting policies and stimulus.
• After a two-year period, China has surpassed India in terms of portfolio allocation at Britain’s Aubrey Capital Management.

Indian Stock Markets: Not All is Bleak

Despite the recent exodus of foreign investors, market experts have expressed their confidence in the long-term prospects of the Indian economy and its markets.

Indian equity benchmark indices BSE Sensex and Nifty50, have staged a smart comeback in the last five days. Equity investors’ wealth has surged by Rs 22.12 lakh crore during this five-day stock market rally.

FIIs have shifted from their selling stance to become net buyers, influenced by accommodative signals from the US Federal Reserve indicating potential dual rate reductions this year.

India vs China: Historical Returns & Future Prospects

• Indian markets have beaten Chinese markets by 16.71% in the 5-year time frame and 8.07% in the 3-year time frame.
• Indian markets have shown consistency in performance with positive returns in the last six years.
• FIIs have peaked their short positions in Feb 2025 at 85% short positions, and we are now witnessing signs of a reversal.

India Stock Market: Long-term Story Intact!

Many investors maintain their confidence in India’s potential. Amidst the ongoing global uncertainty, India will continue to be the world’s fastest growing major economy, IMF has predicted.

The recent GDP growth of 6.2% in the third quarter and the RBI cutting repo rate in its February policy review signal that the worst of the slowdown is over for the Indian economy.

India has one of the best economic backdrops of the major markets, with plenty of economic drivers as well as stock market support.

Morgan Stanley’s recent analysis confirms the country’s robust long-term outlook, with their sentiment indicator suggesting a compelling buying opportunity in Indian equities.