The relentless FII selling continues. In fact FIIs sold Rs 6,287 crore in a single session on February 24, 2025. This is the largest single-day outflow since November. FIIs had sold Rs 11,756 crore on November 28, 2024. Overall, for 2025, the FIIs have sold Rs 1.30 lakh crore in 2025 alone and over Rs 3 lakh crore since October 2024.
India is now ranked the second-last in APAC region in terms of allocation, as reported by Financial Express. The latest fund manager survey (FMS) by Bank of America highlighted that allocation to Indian equities are down to a two-year low now and at the same time China has seen significant rebound.
Where are FIIs investing now?
One of the key narratives that have been doing the rounds is that FIIs have been selling Indian stocks like there is no tomorrow and are shifting allocation to other attractive Asian markets like China.
Dr. V K Vijayakumar, Chief Investment Strategist, Geojit Financial Services pointed out that, “The sharp surge in Chinese stocks is another near-term headwind. The ‘Sell India, Buy China’ trade may continue for some time since Chinese stocks continue to be attractive. The sharp spike in CBOE VIX indicates that volatility will continue for sometime. In the US long-term inflation expectations are rising and, therefore, the expected rate cut by the Fed is unlikely to materialise. The Fed might even turn hawkish, impacting US stock markets. If this happens and the US bond yields start declining, FIIs may cease to be sellers in India and may even resume buying. The near-term scenario is highly uncertain.”
Factors helping ‘Buy China Sell India’ narrative
In fact, the Chinese markets have been among the best performing markets globally in 2025.While the Sensex and the Nifty are down over 4% for the year, some of its Asian peers like Hang Seng have risen over 15% in 2025 so far. The gains on Hang Seng Index is particularly relevant as FIIs invest in Chinese stocks through this. The Hang Seng Index has made a staggering recovery from January lows, up 24% from the lows and the Index has now surged to 3-year highs.
Hang Seng’s market capitalisation was $4.56 trillion (HK$35.4 trillion) at the end of January 2025, an increase of 26% from $3.62 trillion (HK$28.1 trillion) for the same period last year. The average daily turnover in January 2025 was $18.51 billion (HK$143.8 billion), an increase of 49% from $12.45 billion (HK$96.7 billion) for the same period last year.
One of the reasons for the uptick has been the surge in tech stocks led by AI optimism with China’s advances with Deepseek. The Hang Seng Tech Index jumped over 5% last week. Along with that China’s GDP growth in Q4also came in higher than estimates at 5.4%. This coupled with hopes of stimulus /liquidity injection by the Chinese central Bank, PBOC buoyed investment sentiment in favour of the Chinese markets.
India’s premium valuation a headwind
The other big factor is India’s relative valuation in the emerging market (EM) basket. India, on a comparative basis, is still a more expensive market. This coupled with dollar’s strength and subdued earnings is also abetting the outflows.
Siddhartha Khemka, Head – Research, Wealth Management, Motilal Oswal explained that it “It won’t be a fair assumption to say that the FIIs are selling India and favouring China. If you see the broad trend, FIIs have in general turned cautious about the entire EM basket including India. There is a lot of uncertainty about how the Trump tariff will pan out at the moment and investors are seeking clarity about it. We have seen some ‘Buy China Sell India’ trade pan out in late last October. But for now there is no clarity about any such distinctive trend in the market. FIIs are selling for a host of reasons including dollar strength, earnings and relative EM valuations.”
Brokerages upgrade India
Interestingly, several key brokerages have come up with their Nifty target for the year. Global brokerage firm, Citi is Overweight on India and has a Nifty target of 26,000 by December. Nomura sees 5% upside in the markets, and expects Nifty at 23,784 by December. Most analysts say that the Dollar Index falling to 104 levels could be a signal for the FIIs and one can expect allocation of funds in the second half of 2025.