The FII selling continues in India. After a brief lull in March, April has seen outflows of Rs 13,000 crores in just 4 days. The US markets went into tailspin over the last two sessions as the tariffs and China’s retaliatory measures sparked global recession concerns. Foreign investors have been on a hectic selling spree thus far but can that change now and would it be practical for India to expect a pie of the global allocation now? Most market observers pointed out any sudden change is unlikely. Moreover, teh sharo slide in the price of gold is a big worry now.
Prashant Jain, Founder and CIO at 3P pointed out that “In this uncertain environment, it will be interesting to observe how capital flows get realigned if US equities continue to underperform. Should that be the case, it may turn out to be beneficial for emerging markets in general and India in particular, given the lower impact on India versus others.”
Sharp fall in gold rates the big worry now
One of the key near-term worries is the sharp 3% slide in gold price. Gold is typically considered as a safe haven buying but what could trigger this sell-off? Market observers highlight that this also indicates the extent of uncertainty in the markets and the severe need for liquidity. In that scenario allocation to India will not happen in a hurry.
Well-known market veteran, Arun Kejriwal explained that “FIIs may start allocating back in India but not immediately. It will be over a slightly longer perspective. The rupee dollar parity is improving. Dollar index is falling. Crude is falling. Silver, an item which is used primarily in electronic items, falling is indicative of falling demand for these products. But gold falling at such a time when there is turmoil is something which is a little bit of a shocker.
Another leading market expert Ajay Bagga highlighted the importance of the liquidity crunch and the implications of the slide in gold rate in context of flows to India, “FPI selling in India is more a liquidity driven outcome, with GEM and Country specific Indian funds selling to meet liquidations. The news from the US is that hedge funds are facing the highest levels of margin calls , not seen since the Covid outbreak period (March/April 2020). In the scenario, we have seen even gold and silver being sold to generate liquidity all around.”
That said he added that one can take comfort in the fact that “there is no negative on India, as the $80 billion of Indian exports to the US are too small a number in comparison to the scale of the $4.2 trillion Indian economy.”
Can Trump Tariff trigger FII u-turn in India?
As a result, nost market observers believe that though India may see flows return, any sudden change of course is unlikely. The markets will need time to process the repurcussions before they make any significant change in their long-term commitments.
Bagga pointed out that, “an intense risk off sentiment is pervasive in the markets. US markets have lost $5.4 trillion in market cap in the 2 days following the Liberation Day tariffs. We don’t expect sharp inflows for now into the Indian markets till there is some semblance of order created out of the disorder unleashed by Trump Tariffs.
Sentiment recovery could be a process that works out over a few months or it could turn fast in case major trade negotiations are concluded quickly.”
Kejriwal added that, “You also need to understand that while for the short to medium-term American markets are not going to give you any opportunity to make money, FIIs are not going to jump the gun and look for alternate markets immediately and start investing straight away. They’ll have to also read into repercussions of what is going to happen with this new tariff.”
FIIs have so far sold over 3 lakh crore worth equities in Indian markets since October, 2024. The strength in the Dollar Index in this period also supported allocations moving to dollar denominated assets. However, with the Dollar Index slipping over 4% in 2025 so far, the chatters of allocation away from dollar denominated assets is gaining momentum.