Foreign investors have been net sellers in India in 6 of the 7 trading days in January so far. This is in continuation of the significant outflow seen in 2024 as well. According to the latest updates on the NSDL website, FIIs have sold shares worth Rs 22,259 crore in the first two weeks of January. This follows a whopping outflow of over Rs 1.20 lakh crore in the secondary markets in 2024 by Foreign Portfolio Investors or FPIs.
Outlining the ongoing trend, V K Vijayakumar, Chief Investment Strategist, Geojit Financial Services explained that, “FIIs intensified their selling spree in January. The single major reason for the relentless selling by the FIIs is the steady rise in the dollar index which is above 109 now. The surge in the 10-year bond yield to above 4.6% is ensuring capital flows from emerging markets like India. In January through 10th FIIs sold equity for Rs 22259 crores. (NSDL).”
Here are 6 reasons why FIIs are exiting India
The weakness in the rupee and the firming dollar is no doubt a key factor but there are some other concerns too. Here is a look at the 6 reasons why FIIs are selling so much and exiting India-
Rupee weakness/Dollar strength
The rupee has been on a downward spiral since 2025. In the past few trading sessions, the currency has hit a fresh lifetime low and closed at a new closing low in every session. It is currently hovering at the psychologically important 86/$ mark. In fact year-to-date, the currency is down almost 4% against the greenback. The weakness in the currency continues despite efforts by the Reserve Bank of India to intervene in the forex market. The dollar index has seen a steady upmove and it is currently above 109.
US jobs data better than expected
The latest jobs data from the US is another factor that contributed to the FII exodus. According to the jobs data, unemployment levels are better than expected at 4%. This indicates resilience of the US economy and the macro construct indicates favourable opportunities in the US. “This means the possibility of more rate cuts by the Fed in 2025 is receding. This will further push up the bond yield. In brief, the macro construct is not favourable for the return of the FIIs in the near term. They are likely to press further sales putting pressure on the market,” added Vijayakumar.
Competition concerns from US
All eyes are now on the policy announcements and the tariff rates by US President-elect Donald Trump. Uncertainties about tariff rates are one of the key concerns for Indian companies. The Trump Administration is expected to pursue higher tariffs against key trade partners. This is a matter of concern for many Indian businesses and all eyes are on official announcements going forward.
Worries about Indian economy
Most economists expect that for FY25, India’s real GDP growth will remain below consensus. UBS pegs the FY25 GDP growth at 6.3% YoY in FY25 while most are looking at a modest recovery trajectory. This is below the Government’s first advance estimate of 6.4% and RBI’s forecast of 6.6%. According to Tanvee Gupta Jain, Chief India Economist at UBS Securities, “We believe India needs policy support to help stabilise growth in FY26. Our view is that softening economic growth and likely headline inflation deceleration in upcoming months could create room for a shallow monetary easing cycle (75bps) to commence from Feb policy.”
Moreover, inflation also continues to be a key concern as very high inflation brings down the purchasing power of consumers and impacts overall consumption levels.
Earnings growth slow
Most market analysts have indicated a couple of quarters of earnings pain. Many believe that the kind of returns seen for FY24 is difficult to replicate and the Nifty earnings going forward are seen below the 1200 levels. In fact, Q2FY25 saw the slowest earnings growth in 17 quarters driven by weakness in revenue growth and high inflation impacting the consumption levels. While the long-term business viability is intact, investors are seen taking a cautious stance in the near term.
India Vs EM peers
India has had a stupendous 2024, in terms of market returns. However, that has also pushed up valuations, especially compared to many of its EM peers like China. For foreign investors, even US market valuations are significantly attractive at the moment. FIIs, as a result, are seen shifting allocations to other markets that are significantly attractively valued.
Overall, most global experts believe that the Indian markets may see some pause before big asset allocation is seen in India, especially by FIIs. All eyes are now on the Trump administration and clarity on the kind of policy announcement, they believe will set the direction for markets going forward.