Foreign Institutional Investors (FIIs) are currently pulling back significantly from the Indian stock market, having sold shares worth Rs 22,259 crore in just the first two weeks of January 2025. This trend follows a staggering outflow of over Rs 1.20 lakh crore throughout 2024, marking a concerning shift for foreign investment in the country [8c5136f4].
In January, FIIs have been net sellers in 6 of the 7 trading days, indicating a persistent trend of divestment [8c5136f4]. Contributing to this selling pressure is the strong dollar index, which is currently above 109, alongside the Indian rupee hitting a lifetime low at 86 to the dollar [8c5136f4]. These currency fluctuations are making investments in India less attractive for foreign investors.
The economic backdrop in the United States also plays a role in this shift. With U.S. unemployment at 4%, the economy appears resilient, which could lead to tighter monetary policy and increased tariffs under President-elect Donald Trump. Such concerns are affecting Indian companies and their stock performance [8c5136f4].
Additionally, India's GDP growth for FY25 is projected at 6.3%, which is below the government's estimates, raising further concerns about the country's economic outlook [8c5136f4]. High inflation rates are also impacting consumer purchasing power, adding to the worries of foreign investors [8c5136f4].
In contrast, while the bond market in India continues to attract foreign investment, with FIIs investing approximately Rs 1.55 lakh crore in bonds as of December 2024, the stock market's volatility is prompting a cautious approach from investors [5868ff96]. Analysts suggest that the current environment may lead to a continued preference for bonds over equities as investors seek safer returns amidst economic uncertainty [5868ff96].
Overall, the combination of currency instability, economic concerns, and geopolitical factors is shaping a challenging landscape for foreign investment in India, prompting a significant shift from equities to bonds as investors reassess their strategies [5868ff96][8c5136f4].