The recent surge in foreign portfolio investors (FPIs) selling Indian equities ahead of Donald Trump’s inauguration as US President has raised concerns in the market. In just the first ten days of January, FPIs have offloaded shares worth ₹22,194 crore, intensifying the pressure on domestic equity markets. This trend of FPIs being net sellers on every trading day in January reflects a broader trend of volatility in Indian equities, with investors wary of potential policy changes under the incoming US administration and global economic uncertainties.
While FPIs have been exiting the Indian market, domestic institutional investors (DIIs) have stepped in as net buyers, particularly driven by robust retail inflows into equity mutual fund schemes. This shows the resilience of India’s domestic investment base amidst the global headwinds. Market analysts attribute the FPI outflows to profit booking, global liquidity adjustments, and concerns about Trump’s policy directions. On the other hand, retail investor participation through mutual funds remains strong, indicating confidence in India’s long-term growth prospects despite short-term market turbulence.
The sharp contrast between FPI behavior in December 2024, when they net invested ₹15,448 crore, and January 2025 underscores the sudden shift in sentiment. The relentless selling by FPIs is driven by the rise in the dollar index, which is above 109, and the surge in the 10-year bond yield, which is now above 4.6 percent. This suggests that FPIs are turning away from emerging markets like India in favor of more attractive investment opportunities elsewhere.
Multiple factors are contributing to the FPI exodus from Indian markets, including expectations of a weak earnings season, concerns about the tariff war under Trump’s Presidency, a slowdown in India’s GDP growth, high inflation numbers, uncertainty over interest rate cuts in India, and the record low levels of the Indian rupee. Additionally, the surge in US Bond yields and the rich valuation of Indian markets are making Indian equities relatively unattractive for foreign investors.
The significant outflows from FPIs in the past week have led to the largest weekly decline in Indian equity markets in nearly a month. The sell-off has been broad-based, affecting all sectoral indices except the Nifty IT index. The market weakness has been indiscriminate, with mid-cap and small-cap stocks experiencing steep corrections, highlighting investor caution in non-blue-chip segments.
In conclusion, the current scenario in Indian equity markets underscores the impact of global factors and investor sentiment on market dynamics. While FPI outflows have intensified, domestic institutional investors continue to show confidence in the long-term prospects of the Indian economy. The market’s resilience will be tested in the coming days as investors navigate uncertainty and volatility in the wake of Trump’s inauguration.
