Post by : Jyoti Gupta

India’s stock markets have been hit hard this month, as foreign investors pulled out nearly ₹18,000 crore from equities in just the first eight days of August. This large withdrawal has rattled investor confidence and raised concerns about the near-term stability of the markets.

The data, based on figures from India’s depositories, shows that Foreign Portfolio Investors (FPIs) sold a net ₹17,924 crore worth of shares from August 1 to August 8. This sharp selling follows another big outflow in July, when FPIs had withdrawn ₹17,741 crore.

A Year of Heavy Outflows

So far in 2025, the total outflow by FPIs from Indian equities has reached ₹1.13 lakh crore, making it one of the most challenging years for attracting foreign equity investments. This is in stark contrast to the March–June period, when foreign investors poured in over ₹38,000 crore, believing India’s growth story was strong.

Market analysts say the reversal in sentiment is due to a combination of global pressures, domestic challenges, and rising uncertainty.

Why Foreign Investors Are Selling

Several interconnected reasons have contributed to the heavy selling in Indian stocks this month:

Escalating US-India Trade Tensions

• On August 1, the United States imposed a 25% tariff on certain Indian goods.
• This made Indian exports more expensive for American buyers and created fears that Indian exporters would lose market share.
• Just days later, the US announced an additional 25% tariff increase on those same goods, doubling the cost for importers and sending shockwaves through the market.

Investors worry that this could lead to reduced export income for Indian companies, especially in sectors like textiles, engineering goods, and chemicals.

Weak Corporate Earnings in Q1

• The April–June quarter results were disappointing for many big companies.
• Profits fell short of expectations in several industries, including IT, manufacturing, and consumer goods.
• This suggested that domestic demand and global demand may not be as strong as predicted earlier in the year.

Falling Indian Rupee

• The rupee has weakened against the US dollar in recent weeks.
• For foreign investors, a weak rupee reduces the value of their returns when converted back into dollars.
• This currency risk makes India a less attractive investment destination in the short term.

Rising US Treasury Yields

• US government bonds are now offering higher returns due to rising interest rates.
• Many global investors prefer these safe investments over emerging market stocks, which carry higher risks.

Expert Views

Financial experts say the current investor mood is "risk-off", meaning investors are avoiding risky assets like stocks and looking for safer options.

According to market analysts, the next few weeks will be crucial. If trade talks between India and the US show signs of improvement, the negative sentiment may ease. However, if the tariff situation worsens, outflows could continue.

One senior market analyst explained:

“Foreign investors are reacting to both global and local triggers. The trade tariffs were a big shock, and the weak earnings season added fuel to the fire. Unless we see some positive news soon, the pressure on the markets will remain.”

Debt Market Sees Some Inflows

Interestingly, while foreign investors have sold heavily in equities, they have put some money into India’s debt markets.

Between August 1 and August 8:

• FPIs invested ₹3,432 crore in the debt market under the general investment limit.
• They also invested ₹58 crore in the Debt Voluntary Retention Route (VRR), which allows them to invest in long-term debt without facing certain restrictions.

This shows that while they are cautious about stocks, they still see opportunities in Indian bonds, which offer relatively stable returns compared to equities.

Impact on Indian Markets

The heavy selling by FPIs has added pressure on Indian stock indices. The benchmark Sensex and Nifty have faced multiple days of losses this month, with certain sectors like IT, metals, and export-focused industries being hit the hardest.

Market volatility has also increased. Daily price swings have been larger than usual, and trading volumes have risen as domestic investors try to take advantage of falling prices, while foreign investors continue to exit.

Looking Ahead

The outlook for foreign investment in Indian equities remains uncertain. Analysts are watching these key factors:

Trade Negotiations: Any breakthrough between India and the US could help restore investor confidence.

Currency Stability: If the rupee stabilizes, it will reduce currency risk for foreign investors.

Global Interest Rates: If US interest rates stop rising, the appeal of US bonds could weaken, making emerging markets more attractive again.

Domestic Policy Measures: The Indian government may introduce measures to attract and retain foreign investment, such as easing investment rules or offering incentives.

The Bigger Picture

Foreign investors are an important part of India’s stock market. Their buying can push markets to record highs, while their selling can cause sharp declines. In 2025, the balance has tilted towards selling, and the reasons are both external and internal.

For India to reverse this trend, it will need:

• A stable and predictable trade environment.
• Stronger corporate earnings.
• A stable currency.
• A friendly investment climate.

Until then, market watchers expect foreign investor sentiment to remain fragile, with sudden changes in global policy or economic data likely to influence buying and selling decisions.