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In recent developments, the Indian equity markets are experiencing a significant outflow of funds from foreign portfolio investors (FPIs). This month alone, FPIs have withdrawn approximately Rs 64,156 crore ($7.44 billion), marking a substantial shift in investor sentiment. The withdrawal is driven by several factors, including the depreciation of the Indian rupee, rising US bond yields, and concerns over an underwhelming corporate earnings season. Despite investments made in December, totaling Rs 15,446 crore, the current trend reflects a combination of global economic pressures and domestic challenges that have influenced this decision.

The ongoing depreciation of the Indian currency has been a critical factor in this exodus. According to Himanshu Srivastava, Associate Director at Morningstar Investment Advisers India, the weakening rupee is placing considerable strain on foreign investors, compelling them to withdraw their capital from the Indian market. Additionally, the high valuations of Indian equities, despite recent corrections, along with anticipated subdued corporate earnings, have further contributed to investor caution. The unpredictable nature of global policies, particularly those emanating from the United States, has also played a role in making investors wary of riskier investment options.

V.K. Vijayakumar, Chief Investment Strategist at Geojit Financial Services, highlighted that the sustained strength of the US dollar and the rise in US bond yields are primary drivers behind the selling activity. He noted that as long as the dollar index remains above 108 and the 10-year US bond yield stays above 4.5%, the trend of FPIs selling off shares is likely to persist. This scenario underscores the interplay between global financial conditions and local market dynamics.

FPIs have been net sellers in the Indian equity market almost every day this month, with only January 2 being an exception. The consistent selling pressure indicates a broader realignment of investment strategies among foreign investors, who are responding to changing macroeconomic landscapes both within India and internationally. As these factors continue to influence market behavior, the Indian equity market may face further volatility in the coming weeks.

The current outflow of foreign capital from the Indian equity market highlights the complex interplay of global and domestic economic forces. Investors are carefully reassessing their positions in light of shifting currency values, interest rate trends, and corporate performance expectations. While the immediate outlook appears cautious, the long-term trajectory of the Indian market will depend on how these factors evolve and whether they stabilize in the near future.