FII selling resumes. More disappointment for the market ahead?

If you are in the camp that was celebrating the first FII buying in the market after 23 sessions, well they are back to selling again. FIIs have sold Rs 1683 crore worth equities in the market on February 5 while DIIs bought Rs 996 crore worth equities.

In fact, FII selling trends thus far indicate that they have sold equities worth Rs 93,533.72 crores in India so far in 2025. In January, they had sold Rs 87,374.66 crore after the massive 1.77 lakh crore sold in the previous three months or the last quarter of 2024. Notably, FII outflows were at second record highs in January, 2025 after the massive Rs 1.14 lakh outflow in October last year.

It is no secret that investors are worried about why FIIs are selling like there is no tomorrow. Market experts have pointed out that it is not much of a worry for India now. The FII selling, at the moment, has got more to do with the dollar’s movement than with core EM fundamentals.

It’s all about the dollar say experts

That brings us to the question that, ‘what’s fuelling the outflow? Shrikant Chouhan, Head of equity research, Kotak Securities explained that this is “Nothing serious. For the next few days we need to observe the FII trends. It will primarily depend more on how dollar index and 10-year bond yields performs… if we see further decline in, then FIIs will stop or will slow down selling in Emerging Markets.”

Siddarth Bhamre, Head Institutional Research-Asit C. Mehta Investments Intermediates corroborated that view and added that, “Liquidity world over is moving towards dollar denominated assets. Reprcussions of Trump’s policies are being felt in EMs. US bond yields and dollar had started strengthening even before the US election results were declared. The entire EM basket is seeing outflows. So, you have to understand that the current FII selling has more to do with what is happening in US and less with what’s happening in India.”

What’s the right investment strategy now?

It goes without saying that the relentless FII selling has had impacted investor sentiment to a large extent but analysts rule out the possibility doom and gloom and believe, the correction in Indian equities will be more shor-term in nature. According to Chouhan, “Valuations are expensive but more than that if dollar starts correcting then we could see some stability in terms of FII activity.”

Additionally, experts suggest that investors need to have a stock specific approach now- “The Budget was shot in the arm to boost consumption. But it was a Budget for long-term growth and did not have short-term triggers that can change the course significantly in the near future. It is difficult to asess when FII selling will stop. India is still among fastest growing economies even though there is some slowdown. I do not see prospects for any bear market scenario at the moment. We may see short-term correction while earnings stabilise. For the next 1 year I believe markets will reward stock pickers. You need to look at undertaking bottom-up reaserch, identify the stocks and invest there,” added Bhamre.

I had posed the same question, ‘when will FII selling stop in India‘, to Nilesh Shah of Kotak Mahindra AMC a few days before the Budget and he had mentioned that, “We can’t control what others are doing. We must focus on what is in our hands to attract global investors.”

DII buying Vs FII outflow

Interestingly the DII selling on February 5 is more than double of what they sold on February 4- Rs 430.70 crore. In fact February 4 was the first time that DIIs sold in entire 2025 so far. In January DIIs had bought Rs 86,591.80 crore, nearly as much as the FIIs sold. Even if we tally the numbers for October 2025, DIIs bought Rs 107,254.68 crore when FIIs sold Rs 1.14 lakh crore in a single month. In fact, DII flows into equities were the highest ever in 2024, exceeding over Rs 5 lakh crore.

Dollar drama

All eyes are now on the Dollar Index and its next move. The US dollar remains one of the top-ranked currency in most investment models supported by strong yield, steady growth and the safe-haven appeal.