It is been a relief of sorts for the markets for the few days with the Nifty closing above 23500 on the last trading day of January. However, this has been one of the most devastating January in terms of FII outflows. Foreign Institutional Investors have sold Rs 87,374.66 crore in January 2025, the highest-ever recorded in January.
One of the big triggers for this unabated FII selling has been due to “the sustained strengthening of the dollar and rise in the US bond yields have been the principal factors driving the FII selling, said V K Vijayakumar, Chief Investment Strategist, Geojit Financial Services.
Here are 4 reasons why FIIs are selling Indian stocks
However that’s not the only concern for the markets. FPIs or Foreign Portfolio Investors are cautious as a result of multiple factors-
Rupee continues to be under pressure
The rupee continued to face pressure due to the broad strength of the dollar in the overseas markets as a result of the unabated dollar demand from oil importers and weak risk appetite. The currncy slipped to a low of 86.65 as the positive dollar pressurised the Indian currency. The recent liquidity infusion by the RBI to the tune of Rs 60,000 crore in three tranches did offer some support but the rupee remains under pressure. State-run banks were spotted offering dollars, most likely on behalf of the RBI, which helped limit the rupee’s losses, as per sources but the currency still declined over 1.2% over January and is on track to underperform its regional peers.
New Trump tariffs come into effect on Saturday- February 1
Foreign investors are also cautious as US braces for changes in US trade tariff. U.S. President Donald Trump will be imposing 25% tariffs on Canadian and Mexican imports. Ball park estimates across a host of souces indicate that these changes could disrupt over $1 trillion in annual trade.
Donald Trump has set a Saturday deadline to impose the duties over his demands that Canada and Mexico take stronger action to halt the flow of illegal immigrants and the deadly opioid fentanyl. The exact implication for Indi ais not very clear and experts see the impact on India to be limited but India is unlikely to be completely immune to the changes.
India’s valuation concerns
Though Sensex and the Nifty have corrected significantly in January, valuations are still a worry for Indian markets. Even at current levels The India continues to be one of the most expensive markets globally. The Nifty at 23500 has a PE of 21 times and this is significantly higher than most EM peers. The valuations of US markets in comparison, especially with the dollar maintaining its strength offer FIIs a lucrative alternative investment
Earnings pain continues to worry investors
The Q3 earning sseason has been far from encouragiong. Though one can argue that the earnings pain is already factored in, the point is that it no doubt dents investor sentiment. Nifty earnings are seen below 1200 levels and the kind of returns seen in FY24 is hard to replicate as per most analysts. The pain is earnings is expected to continue for the next couple of quarters and this no doubt impacts investor bias
All eyes on the Budget
Meanwhile for now the markets are focussed on Budget on February 1. The markets will be trading despite it being Saturday and the street is looking forward to measures that can help boost consumption. All eyes are on how the FM boosts consumption levels for the middle class and if the PM’s speech ahead of tabling the Economic Survey in Parliament is any indication, the street may have something to cheer “I pray to Goddess Lakshmi to shower poor, middle class with blessings…”