FIIs withdraw Rs 27,000 crore in 9 days: Trump's tariff, weak rupee spook investors; short positions at record high
Foreign institutional investors (FIIs) have withdrawn over Rs 27,000 crore from Indian equities across nine days, driven by a mix of weak Q1 earnings, US President Donald Trump's new 25 per cent tariffs on Indian goods, and a weakening Rupee.
On Thursday alone, FIIs pulled out around Rs 5,600 crore after Trump's tariff announcement, which dented investor sentiment and raised concerns about India's attractiveness as an investment destination. The muted earnings season has only deepened caution among global investors.
FIIs have also built record bearish positions in the futures market. At the start of the August series, their long-to-short ratio in index futures dropped to just 0.11- meaning 90 per cent of their positions are now shorts- the lowest since 29 March 2023, reported Economic Times.
This surpasses the previous high of 89 per cent net short during the January expiry. Nifty's rollover for July stood at 75.71 per cent, down from 79.53 per cent a month earlier.
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Additionally, the IT index has slumped 10 per cent in the past month, while the Nifty Bank remains flat. India's top nine private sector banks posted just 2.7 per cent growth in the June quarter, reflecting tepid credit demand and cautious expansion, according to an ET report.
The dollar's strength has compounded pressure. The dollar index, which tracks the greenback against six major currencies, climbed 2.5 per cent this week to breach 100- its highest level in two months and on track for its strongest weekly gain in nearly three years.
'While we are hopeful of India-US relations improving again in the medium term, this near-term uncertainty could further impact an already underperforming though expensive Indian equity market," said Vikash Jain of CLSA, as quoted by ET.
Sunil Subramaniam added, 'FIIs had been selling right through the month. So, they probably had an inkling that the BTA is not really going India's way, and there were other factors around the FIIs selling, which was China looking very good from a valuation and a growth upgrade perspective. I think China's growth is now projected to shoot up to 4.8.'
He also pointed out that US interest rates remain elevated, with the Fed avoiding any discussion of cuts.
Despite the gloom, some market watchers remain optimistic. Vikas Khemani of Carnelian Asset Management was quoted by ET saying, 'As the Fed rate starts coming down, you will see FIIs coming back in my opinion.'
Historical data suggests a potential rebound. Since March 2020, every time the FII long-to-short ratio dipped to 0.15 or lower, the Nifty rose by an average of 7 per cent in the following series- a pattern that hints at likely short covering in the near term.
The market's near-term trajectory will now hinge on the interplay between continued foreign selling and domestic institutional buying, determining whether the current FII exodus is a temporary correction or signals a deeper shift in global capital flows.
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