Foreign institutional investors (FIIs) withdrew Rs 31,889 crore from eight key sectors of Indian equities in the first half of August, led by financials and IT stocks, as U.S. tariff concerns and lackluster June quarter earnings drove overseas funds to the sidelines.
The data, however, predates Prime Minister Narendra Modi’s Independence Day announcement of sweeping goods and services tax (GST) reforms, which brokerages say could be a key catalyst in reversing the FII exodus.
In the first half of August, financial services bore the brunt of the pullback with outflows of Rs 13,471 crore, followed by IT stocks at Rs 6,380 crore. Oil, gas and consumable fuels saw selling of Rs 4,091 crore, power Rs 2,358 crore and healthcare Rs 2,095 crore. Realty, fast-moving consumer goods (FMCG) and consumer durables also joined the list, with each witnessing exits of more than Rs 1,000 crore.
Overall, FIIs sold Indian equities worth Rs 20,976 crore in the first half of August, extending July’s retreat and pushing total withdrawals this year to about Rs 1.2 lakh crore. The drag reflects foreign investors’ reaction to U.S. President Donald Trump’s surprise 50% tariff announcement and muted earnings at home.
Live EventsIndia largest underweight in EM
Nomura said “71% of EM funds are underweight India as at end-July (vs 60% previously), and India is now the largest underweight market in EM investors’ holdings,” with allocations rising to China, Hong Kong and Korea.Meanwhile, BofA Securities said that India has slipped to the bottom of emerging market preferences. “On the other hand, India is affected by President Trump’s announcement of 50% tariffs,” it said, contrasting India’s position with North Asian markets benefiting from the AI cycle and reforms.Brokerages see sentiment turning
Jefferies said on August 13 that “FPI positioning is close to lows” with India allocations at “decadal lows.” The brokerage added that strong domestic inflows provide “big downside protection and a sentiment booster,” though it cautioned that rebounds “may not sustain for long.”
Motilal Oswal pointed to Prime Minister Modi’s Independence Day pledge of GST rationalization, the S&P rating upgrade and a pause on U.S. tariffs as factors that could “rekindle sentiments in the Indian equity market.”
Emkay Global called GST reforms a “growth-accretive, big-ticket reform,” arguing that they offset “near-term worries on weak growth and tepid earnings” and can serve as a rerating trigger to bring FIIs back as confidence improves.
Brokerages broadly agree that FIIs remain cautious, but say GST rationalization, relief on trade tariffs and stronger domestic flows could help turn India’s status as the most underweight emerging market into an opportunity for reallocation.
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