Foreign Institutional Investors (FIIs) were net sellers across all major sectors in the first fortnight of January 2025, pulling out a total of Rs 35,658 crore from Indian equities, reflecting bearish sentiment amid rising US bond yields and a weakening rupee.
The largest sell-off came from the financials sector, where FIIs offloaded Rs 12,200 crore, followed by consumer services (Rs 3,500 crore), power (Rs 3,115 crore), and capital goods (Rs 2,620 crore). Smaller investments were seen in sectors such as textiles (Rs 205 crore), media (Rs 177 crore), and chemicals (Rs 42 crore).
Amid this selling spree, FII ownership of Indian equities fell to 16.2%, its lowest level in a decade, while domestic investors, or DIIs, increased their stake to 10%, marking a 10-year high. Despite a reduction in FII dependence due to strong domestic flows, the continued outflows remain a risk for the Indian market, according to analysts.
A BofA Securities survey also highlighted a pessimistic outlook among global investors, with most fund managers predicting further declines in the Indian equity markets.
Kunal Vora, a strategist at BNP Paribas, noted that India is not immune to FII selling, despite rising DII holdings. He added that FII ownership is still 1.6 times that of DIIs, which means their continued outflows could weigh on the market.
“India could see large FPI outflows with DIIs providing an exit to FIIs around current high valuations,” said Sanjeev Prasad of Kotak Institutional Equities. He warned of potential modest collateral damage for the Indian economy in the event of a prolonged standoff between FIIs and DIIs.
With a downward trend in earnings estimates, InCred Equities has revised its blended Nifty50 target down by 8% to 23,260, with a bear-case target of 21,016, signaling a 9% downside. However, analysts remain cautious, pointing out that EPS revisions are yet to bottom out. Large-cap stocks remain favored over smaller companies amid the ongoing volatility.
FII sentiment is also influenced by broader macroeconomic factors, including US policies. Narinder Wadhwa of SKI Capital said that Trump’s protectionist trade policies could pose challenges for Indian export sectors such as IT and pharma, while infrastructure spending might benefit commodities and infrastructure sectors in India. However, geopolitical uncertainties and sharp policy shifts could lead to FII outflows and further rupee depreciation.
