Stock market at near two-month lows: Why are FIIs selling Indian stocks? Explained

Time of India

7 days ago

The stock market downturn is being attributed to the persistent FII selloff. (AI image)
Indian stock markets are at near two month lows - Nifty50 and BSE Sensex have dropped over 2% in the last few trading sessions. Foreign Institutional Investors (FIIs) are on a selling spree!
On Monday, Nifty50 and BSE Sensex declined for the third consecutive day.
Equity benchmark indices have been dropping for four straight weeks. The stock market downturn is being attributed to the persistent FII selloff and the rising uncertainty of whether India will be able to seal a trade deal with the US before Donald Trump's August 1 deadline.
Dr. VK Vijayakumar, Chief Investment Strategist, Geojit Investments Limited says, 'FII selling of Rs 13552 crores in the cash market last week has added to the weakness in the market.
Yet another concern is the Q1 results, which are not yet indicating any major positive surprises.'
Why are
FIIs Selling Indian Stocks
?
Over the past four months, FIIs remained net buyers in the Indian cash market, investing a total of ₹24,011 crore — averaging over ₹6,000 crore per month.
However, this trend has sharply reversed in July, with FIIs pulling out ₹28,528 crore so far till Friday, signaling a significant shift in sentiment. This selling has been far more aggressive than the pockets of mild buying seen on select days, says Sudeep Shah, Head - Technical and Derivatives Research, SBI Securities.
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'Alongside, the FII long-short ratio in index futures has dropped steeply from 36.4 on June 30 to just 14.83 by July 24, driven by a sharp rise in short positions — net contracts worsening from -38,123 to -1.45 lakh,' Sudeep Shah tells TOI.
He is of the view that multiple factors seem to be at play. 'The US dollar has strengthened by 0.88% since the start of July, making Indian assets relatively less attractive. Additionally, expectations of a Fed rate cut, lack of any major trade deal announcement involving India, and the impact of the Jane Street ban have also weighed on FII sentiment,' Sudeep Shah says.
'This combination of heavy outflows, rising shorts, and low confidence has contributed to a 3.24% decline in the Nifty from its July highs, reflecting the nervousness in the broader market,' he adds.
According to Shweta Rajani, Head - Mutual Funds, Anand Rathi Wealth Limited, FII activity picked up in July 2025, driven by a mix of global macro developments, short-term policy uncertainty, and cautious positioning.
'One of the main reasons behind this cautiousness is the delay in finalising the India–US trade agreement. Conversations around tariffs and digital trade rules have added some ambiguity, prompting foreign investors to hold back a bit and watch how things unfold. On top of that, Q1 FY26 earnings have been slightly slow in some FII-heavy sectors like IT and financials,' Rajani told TOI.
She attributes the FII positions to global factors and headwinds as well.
'The US 10-year Treasury yield has been climbing and the dollar is gaining strength, leading some global investors to rebalance their portfolios with more exposure to the US. In the derivatives segment, we're also seeing over 80% short positions by FIIs in index futures, which looks more like a tactical response to the current uncertainty than a directional call.
Whenever FII positioning has reached around 80% on either the long or short side, markets have often seen a reversal in direction,' she said.
Indian Stock Markets Resilient
Shweta Rajani is confident that India's macro fundamentals continue to offer support. 'GDP growth remains strong at 6.5% for FY25 and is projected at 6.6% for FY26, maintaining India's status as the fastest-growing major economy. Inflation is well under control, with CPI at 2.1% in June and expected to stay below the RBI's 3.7% target,' she explains.
'Fiscal strength is also evident, the FY25 deficit narrowed to 4.8% of GDP, aided by disciplined spending and a record ₹2.7 lakh crore RBI dividend.
Tax collections have been robust, growing 13.7% in FY25, reflecting strong economic activity. Also, DII inflows of ₹37,687 crore this month, have helped cushion the impact of foreign outflows and provided a layer of stability,' she adds.
'Overall, these phases are a normal part of market cycles. With strong domestic fundamentals and active DII support, Indian markets remain in a neutral zone where FII selling alone is unlikely to cause a sharp correction. Investors should stay focused on long-term goals and avoid reacting to short-term fluctuations,' she concludes.
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