The market response to Trump’s 25% tariff on India is something everyone is watching out for. Another key aspect to watch out for is how this impacts the FII flows. Foreign institutional investors have already net sold equities worth over Rs 42,000 crore in July. This is more than double of what they have net bought in the last 4 months.
Given the current pace of outflow, July is also on track to see the third highest outflows in 2025 so far. This current Rs 42,000 crore number is just a tad short of the net sell number for February at Rs 58,000 crore. February this year saw the second-highest outflows after foreign institutional investors net sold Rs 87,374 crore in January this year.
Trump tariff: How will this impact FII flows
A recent report by Nuvama, in the aftermath of the latest Trump tariff announcement, indicates that “FII outflows could accelerate. The higher tariffs on India (versus expectations) could potentially weigh on capital flows. FII flows have now become critical in shaping market outcomes amid heavy promoter selling and slowing DII flows. Overall, maintain a cautious stance on markets.”
Dollar spikes 2% in 5 days
The rupee has also slumped to 4-month lows against the dollar. Historically, FII selling in India has spiked when the dollar gains strength and the rupee weakens.
The Dollar Index has spiked back to 99 levels after hovering in a range between 96-97 for weeks together. The Dollar Index is up over 2% in the last 5 days with the spike seen in last two trading sessions.
FII flows and IPOs: What’s the connection?
Another interesting phenomenon being observed in the market is the IPO spree and the FII action there. Overall, close to 40 IPOs have been launched in July so far and many market observers are of the opinion that FIIs have been exiting secondary market and buying in the parimary market.
Dr. VK Vijayakumar, Chief Investment Strategist, Geojit Investments pointed out that “the consistent buying by FPIs in the primary market is in contrast to the selling through the exchanges. This trend holds true for the CY2025 also. Lower valuations in the primary market and higher valuations in the secondary market explain this paradox.”
However, market veteran Ajay Bagga pointed out that “that has been a pattern. FPIs are made up of various segments, from Sovereign funds, Endowments, Pension Funds, EM ETFs, India specific ETFs to hedge funds to PE/VC funds investing in Indian companies . We dont have granular data on which category was sold in secondary markets or bought in primary/QIP markets. Block deals are happening with PE funds exiting investments due to end-of-term considerations or to book profits. On the Primary market, FPIs get in on the anchor book to take exposure in unique companies or add to existing positions, like in the large public sector bank QIPs .”
All in all, Trump’s tariff, a weakening rupee, dollar strength, and a buzzing primary market seem to be creating avenues for redirecting funds. The big question is as July comes to an end, will the selling spree in equities continue in August, or can one hope for a sustained turnaround in the second half of the year?