The big FII selling trend from mid-July continues in August. Despite the foreign institutional investors buying equities worth Rs 1,932.81 crore, they have been net sellers for August with outflows in the cash market exceeding Rs 14,000 crore. This is more that what the FIIs bought in entire May.
In the last 40 days FIIs have sold equities worth over Rs 61,000 crore. Manish Sonthalia, Director and CIO, Emkay Investment Managers, pointed out that “FII selling has been primarily on account of impending negative implications on India on the back of elevated tariff announcements by the US. Hopefully, now that tariffs have been announced, those selling will abate, as the negative impact is not that big. Added to that, a known uncertainty is always better than an unknown certainty, and so short covering or fresh buying from the FIIs should also come through.”
What sectors saw maximum FII selling in July?
The August data indicates that the FII selling trend in specific sectors continues to follow the July action. IT, BFSI, Realty, Auto, O&G and durables saw the largest FII outflows in July. As per a study by JM Financial, the outflows were largest in the tech sector, nearing $2,285 million. This was followed closely by BSFI, which saw a $671 million outflow. The realty sector outflows equalled $450 million, while auto was at $412 million. The Oil & Gas sector, another sector with high FII holdings, saw outflows to the tune of $372 million, and outflows from Durables were at $302 million.
What’s on the FII buy list in July?
As per the JM Financial study, in contrary to the top 5 sectors, few sectors saw some bit of FII buying. As per their study, the metals saw FII inflows of $388 million in July, followed by services at $347 million. The FMCG inflows are at $175 million, while FII buying telecom equalled $169 million, and in chemicals, FIIs bought equities worth $130 million.
FII holding: Top 5 sectors unchanged but tech sees some trimming
That said, “BFSI, IT, oil & gas, auto and pharma remained the top 5 sectors wherein FIIs held Indian equities. These 5 sectors in themselves add 60% of FII assets in India. Of these, we saw a marginal sequential uptrend in pharma and auto, while IT and oil and gas saw a decrease,” added JM Financial in its report.
As a percentage of FII Equity Assets under Custody in India, “BFSI remained the highest at 31.6%, flat sequentially. FIIs turned net sellers of BFSI equities in July. IT services (the second highest) stood at 7.4%, declining from 8.2% in June. FIIs turned net sellers of IT Services equities in July,” the JM Financial report pointed out.
Market veteran Ajay Bagga also corroborated the view and said, “FIIs have sold IT and Banks.”
Are tariffs still the big worry for FIIs investing in India
The India-US trade stalemate continues. With exports worth $87 billion at stake, all eyes are on the next few days and how the talks proceed and if India can broker a midway.The Commerce Minister Piyush Goyal has earlier said that India won’t bow to pressure after Trump’s 50% tariff hike.
Bagga reiterated that “tariffs create a worse sentiment, but still the feeling is that these secondary tariffs are a negotiating tactic. So not much of an impact. FPI numbers are getting coloured by foreign promoters also selling out, like Chinese investors existing new age companies for strategic reasons.”
According to Sonthalia, “As I understand, the tariffs issue with India is brinkmanship at the forefront. I would believe in the next three or four months tariffs for India will come down to around the rates which other countries are paying. Why do I say this is because American companies have so many investments in India, particularly in electronics, autos, speciality chemicals, pharma…all these will go bad with a 50% tariff . Of course, near-extreme short-term impact is negative on GDP growth in India; this would be mitigated through rate cuts and possible further export incentives.”
Link between FII flows and the market
Often the bearish trends in the market are linked with period of FII outflows. Let’s take a look at how close this correlation is. The JM Financial study indicates that “FII ownership as a percentage of total Indian equities over the years has fallen to 16% in July 2025 from 20.2% in July 2015.” The Nifty returns in this period average roughly 10% every year, as per an approximate back-of-the-hand calculation.
If we look at monthly FII flows, in July, “FIIs were net sellers to the tune of $2.9 billion while the Nifty fell 3% MoM, after a 3.1% rise in June. FIIs turned net sellers after four consecutive months of being net buyers. Nifty also saw a MoM decline after four consecutive months of MoM rise,” pointed out JM Financial.
In the last 1 year, the Nifty fell the most last October, 2024 on a month-on-month basis, down 6.2%. It was incidentally also the month that FII outflows were one of the largest, when they sold equities worth over Rs 1.14 lakh crore.
No doubt interesting times are ahead in terms of how the FII flows turn out given the tariff overhang continues. Another key factor that continues to be on the investor radar is how the dollar level pans out. If we look at the last few months, the dollar has been on a downtrend, with the Dollar Index hovering around the 97-98 mark. In the last 3 months the Dollar Index is down 2%, and despite some mid-year recovery, for 2025 the Dollar Index is still on track for nearly a 10% decline.