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FIIs Keep Selling Despite Market Rally – Will Foreign Investors Return to India?
Indian stock markets witnessed a strong rally last week, driven by major announcements on GST structure reforms and an upgrade in India’s sovereign rating by S&P Global. Despite this, Foreign Institutional Investors (FIIs) continued to pull out capital from Indian markets. This contradiction has raised a key question: Will foreign investors make a comeback, and if so, when?
Domestic Investors Provide Support
According to data from NSDL and NSE, between 18–22 August, FIIs sold more than ₹2,000 crore worth of shares. In contrast, Sensex and Nifty gained nearly 1%, while BSE MidCap and SmallCap indices surged over 2%. This rally was largely supported by domestic investors, who bought shares worth around ₹10,000 crore during the same period.
A Prolonged Selling Trend
This selling spree is not new. In 2024, FIIs withdrew over ₹1.21 lakh crore, citing high valuations, uneven corporate earnings, and global uncertainties. In 2025 (year-to-date), they have already pulled out ₹1.57 lakh crore.
D.R. Choksey FinServ MD Diven Choksey explained, “Indian markets are currently expensive in terms of valuation. Foreign investors don’t see much benefit at these levels. They will return only if Sensex and Nifty’s forward PE falls below 20x.” At present, Sensex’s PE is 20.62x and Nifty’s PE is 20.4x, both above their long-term averages.
Global Signals Dominate Sentiment
Experts believe that FIIs are more influenced by global cues than domestic factors. Attractive U.S. bond yields, a strong dollar, and a weak rupee have increased hedging costs, slowing capital inflows into India.
Recently, the U.S. Federal Reserve hinted at a possible rate cut in September, which weakened the dollar and reduced treasury yields. On the other hand, the RBI’s cautious monetary policy has dampened investor expectations at home.
Choice Wealth AVP Akshat Garg said, “If there are clear signs of monetary easing globally, the rupee stabilizes, and corporate earnings consistently improve, then FIIs may return to India.”
FIIs Shift Focus Away from India
According to Bank of America’s fund manager survey, India, which was once the most favored equity market in Asia, has now become one of the least preferred.
A Nomura report revealed that out of 45 large Emerging Market (EM) funds, 41 reduced their India allocation in July. India’s allocation in the MSCI EM benchmark dropped by 2.9%, the steepest decline in the region. In contrast, allocations to Hong Kong, China, and South Korea have increased.
Conclusion
In short, the sustainable return of FIIs will depend on two factors:
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India’s growth story translating into broad-based corporate earnings.
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More favorable global signals.
For now, it is domestic investors who remain the true backbone of India’s market strength.
⚠️ Disclaimer: The views and investment advice shared by experts/brokerage firms on tradewithmohib are their own and not those of the website or its management. tradewithmohib advises users to consult a certified financial expert before making any investment decisions.
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