Why FIIs are selling from Indian Stock Market? Any Signs of a Reversal?

A year of volatility with elections, global crises, and challenging corporate earnings. Despite these difficulties, the Indian market stood tall with a gain of around 9% in CY24. However, the continuous selling by FIIs has raised concerns about the market’s future. This leads to the question: Why are FIIs selling continuously?

Why are FIIs selling?

Once upon a time, foreign investors’ favorite, the Indian Market is now facing the difficulty of selloff by them. According to analysts, there could be several factors behind the massive selloff by the FIIs.

Weak Earnings of Indian Companies

After growing strong over the years, Indian companies faced some difficult times during the 2nd Quarter of FY25. At the same time, most of the large companies failed to impress the market resulting in a sell-off from FII.

As per the analysts, the high valuation of the Indian market can be held responsible for the massive FII exit as it is one of the most expensive markets in emerging economies.

Also, another reason for the selloff could be because India’s Q2 FY25 real GDP growth fell to a seven-quarter low of 5.4% YoY. However, experts feel that the GDP is likely to recover by 2nd half of FY25.

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Attractive China Markets.

The global markets such as China, seem to be attractive for foreign investors as it is trading at a lower valuation compared to the Indian market. During September, the foreign investors invested $96 billion as a result the Chinese market soared over 20%.

Research Analyst and Senior Vice President of Research at Mehta Equities, Prashanth Tapse said: “The China factor also played a role in the recent selloff on Indian equities as FIIs chose to shift some funds to the Chinese market, assuming better short-term yields in comparison to India as valuations have become cheap”.

Trump card

According to analysts, The newly elected US president, Donald Trump has plans to increase the tariffs on imports from other countries like China as well as the new president of the US is likely to cut the corporate tax. Such plans of the US are likely to strengthen its dollar which may hurt emerging countries like India.

The analyst at JM Financial says, “We believe Trump’s plans for lower corporate taxes, higher import tariffs, and deportation of illegal immigrants will result in growth of the US economy, higher inflation, higher interest rates, and a stronger US dollar. This might tempt FIIs to take at least some portion of their money to the US”.

Effect on Indian Market.

A foreign currency for emerging countries like India is important since it converts from dollar to rupee. However, the current FII selling made the demand for Dollars high because they are selling their investments and converting their rupees into dollars which causes the rupee to weaken.

On the other hand, the selling from foreign investors also led to a sharp decline in stocks as well as volatility and unpredictability because of the selling. Also, this has led the Indian indices like Nifty 50 and Sensex to fall.

Will Selling Stop anytime sooner?

The different analysts from different brokerages have mixed views on this question.

According to Dr. V K Vijayakumar, Chief Investment Strategist, Geojit Financial Services: selling from India and buying in China has ended, and also US market valuation has reached its high. Moreover, the valuation of large-cap companies in India has come down from its peak. As a result, the analyst believes that the selling is likely to slow down sooner.

However, Rakesh Vyas, co-chief investment officer and portfolio manager at Quest Investment Advisors said, the FIIs are likely to come back during early CY25. The analyst thinks the Indian GDP and companies are likely to rebound and grow at the highest among the other emerging markets.

On the other hand, Prashanth Tapse, Senior Vice President of Research at Mehta Equities believes the selling by the FIIs are likely to continue their selling from Indian Market. He said FIIs are likely to gain more in their hometown after Trump’s victory.

Final Words

FIIs selling has not affected the Indian Market heavily thanks to the DIIs. who came to the rescue with their cash in reserve that held the market from falling sharply. However, if the selling continues then it will be a concern for the stock market.