The FII sentiment seems rather muted in July so far. In just 15 days foreign institutional investors have net sold Rs 11,778.03 crore. This is incidentally a tad more than the total amount that FIIs net bought in May. FIIs had net bought Rs 11,773.25 crore in May, and thereon the number began tapering off. If we take stock of 2025 so far, they have been net sellers of equities worth over Rs 1.22 lakh crore. The big question is what’s leading to this nervousness?
Saurabh Mukherjea, Founder & CIO, Marcellus, explains that “a combination of high valuations and weak earnings growth in India is making FPIs nervous.”
“The nervousness that we are seeing currently amongst FIIs is mostly a function of the delay in the finalisation of trade talks between India and the US. There is apprehension with regard to the final contours of the deal,” added Siddharth Khemka, Head Research, Wealth Management, Motilal Oswal Financial Services.
Three key concerns for FIIs now
Therefore, there are three key factors that are weighing on investor sentiment at the moment—
1.India-US trade deal: No headway yet
The India-US trade talks continue, and nothing is finalised yet even though the August 1 deadline is looming ahead. Though US President Donald Trump was confident about claiming “access into India,” the details are not out yet.
Market Veteran Arun Kejriwal highlighted that this is “one of the reasons why FIIs are nervous—the fact that there is no headway still in the India-US trade talks. Negotiations have been going on for a while now. The expectations from the trade treaty are quite high. They feel India may be one of the few favoured nations that could be a reliable trade partner for the US. Though in terms of scale, India may not be able to match China at the moment, but reliability is key. This is why the delay is leading to concern amongst the investor fraternity.”
He added that “India has made its stance clear in terms of not opening up the agri- and dairy sector.” The contours of the deal, for these segments especially, would be a key factor to watch out for.
2.Q1 earnings muted so far
The other reason why FIIs seem rather quiet is the earnings factor. The Q1 earnings, after the surprisingly strong Q4, has been rather muted so far. The tech earnings, especially, have been disappointing. With TCS and HCL Tech both highlighting geo-political headwinds and delays in deal closures, FIIs are particularly wary and can be seen committing limited amounts in the Indian stock markets. This has also led to apprehension about further downside going forward. Market veteran Arun Kejriwal pointed out that “the markets are very interestingly poised. Technically, the Nifty is seeing resistance around 25,600. Even if the US-India trade tariff disappoints, it could possibly slip to early July levels and slip further. However, the IPOs and OFS continue, and this has ensured that there is no liquidity oversupply in the market. It is being sucked out continuously at regular intervals as a result of these issues.”
3. Valuation worries
The other big worry for FIIs is India’s relative valuation to EM peers. The MSCI India valuations have risen to 23.3x, almost 1.5x higher than the 10-year average. Even compared to other EMs, India’s valuation is at an 82% premium.
Dr. VK Vijayakumar, Chief Investment Strategist, Geojit Investments, added that “FPI selling in July after three months of buying can be attributed to the recovery in the market from the March lows and the consequent elevated valuations. Since other markets are cheaper relative to India, FIIs may again sell and move money to cheaper markets as a short-term strategy. In H1 2025 the Indian market underperformed most markets, including the MSCI EM index.”
That said, FIIs continue to invest in the primary market—IPOs, OFS—even when they have been selling in the secondary market. The dollar also continues to be in the doldrums, with the Dollar Index around the 98 mark.