The exodus of FPIs from the Indian equity markets continued unabated, as they withdrew over Rs 7,300 crore (about $840 million) in the first week of this month due to global trade tensions, with the US imposing tariffs on countries such as Canada, Mexico, and China.
This came following an outflow of Rs 78,027 crore in the entire January.
Before that, they invested Rs 15,446 crore in December, data with the depositories showed.
Going forward, experts believe that market sentiment will likely take cues from global macroeconomic developments, domestic policy measures, and currency movements.
According to the data, Foreign Portfolio Investors (FPIs) offloaded shares worth Rs 7,342 crore from Indian equities so far this month (till February 7).
Himanshu Srivastava, associate director-manager research, Morningstar Investment Research India, said that a key driver of the outflow was global trade tensions, as the United States imposed tariffs on countries including Canada, Mexico, and China, heightening fears of a potential trade war.
This uncertainty triggered a risk-averse sentiment among global investors, prompting capital flight from emerging markets like India.
Further exacerbating the situation, the Indian rupee depreciated sharply, breaching Rs 87 per US dollar mark for the first time.
A weaker rupee erodes returns for foreign investors, making Indian assets relatively less attractive and adding to the pressure on FPI lows, Srivastava added.
"The strength in the dollar index and the high US bond yields continue to force the FPIs to sell.
"Going forward, FPIs are likely to reduce their selling since the dollar index and US bond yields are indicating a softening trend," V K Vijayakumar, Chief Investment Strategist, Geojit Financial Services, said.
He further said that the sentiments in the Indian market would slowly improve in response to the Budget announcement and the rate cut by the Reserve Bank of India (RBI).
The victory of the BJP in the Delhi elections is likely to positively impact the market in the short run.
However, the medium to long-term trend in the market will depend on the recovery in GDP growth and earnings recovery, he added.
"Given the volatile, subtle, and unpredictable market events, India still stands grounded well with the government taking all rightful measures to make it ready to face the global economic challenges that lies ahead," Manoj Purohit, Partner & Leader, FS Tax, Tax & Regulatory Services, BDO India, said.
On the other hand, FPIs were buyers in the debt market.
They put in Rs 1,215 crore into debt general limit and Rs 277 crore in debt voluntary retention route.
The overall trend indicates a cautious approach by foreign investors, who scaled back investments in Indian equities significantly in 2024, with net inflows of just Rs 427 crore.
This contrasts sharply with the extraordinary Rs 1.71 lakh crore net inflows in 2023, driven by optimism over India's strong economic fundamentals.
In comparison, 2022 saw a net outflow of Rs 1.21 lakh crore amid aggressive rate hikes by global central banks.
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