Foreign investors have turned net sellers in Indian equities, withdrawing Rs. 8,749 crore in the first week of June 2025 amid renewed US-China trade tensions and rising US bond yields. This pullback follows net investments of Rs. 19,860 crore in May and Rs. 4,223 crore in April, according to data from depositories. The cumulative outflow by foreign portfolio investors (FPIs) this year has now reached Rs. 1.01 lakh crore. Meanwhile, domestic market sentiment was bolstered by an unexpected monetary policy easing by the Reserve Bank of India (RBI), signaling cautious optimism for India’s economic trajectory despite global uncertainties.
Reversal After Heavy Inflows
The first week of June marked a stark reversal for FPIs after two months of robust inflows into Indian equities. In May alone, FPIs had invested a significant Rs. 19,860 crore, buoyed by India’s relatively resilient economic fundamentals and attractive valuations. This followed a moderate investment of Rs. 4,223 crore in April. However, June’s early data reflects a sharp shift in sentiment, driven largely by heightened concerns about global trade dynamics and the impact of rising US bond yields on emerging markets.
Global Headwinds and Domestic Concerns
The renewed tensions between the US and China, alongside a surge in US bond yields, have spurred foreign investors to adopt a more defensive stance. Himanshu Srivastava, Associate Director at Morningstar Investment, pointed out that these geopolitical and macroeconomic factors are steering investors towards safer assets, dampening appetite for emerging market equities like India’s.
Compounding the selloff was a US investigation into the Adani Group over alleged violations of Iran sanctions, which further eroded investor confidence and weighed on India’s benchmark indices.
Debt Markets See Outflows Too
The caution from FPIs extended beyond equities. Data for June 2-6 showed that foreign investors withdrew Rs. 6,709 crore from the debt general limit and Rs. 5,974 crore from the debt voluntary retention route. According to VK Vijayakumar, Chief Investment Strategist at Geojit Investments, the narrowing yield differential between US and Indian bonds has driven these consistent outflows in debt markets as well.
Domestic Optimism and RBI’s Policy Boost
Amid these global headwinds, the RBI’s unexpected monetary action offered a bright spot for Indian markets. In a surprise move, the central bank cut the repo rate by 50 basis points and reduced the cash reserve ratio (CRR) by 100 basis points. This proactive measure has been widely welcomed by investors, as it is expected to provide a much-needed stimulus to domestic economic activity.
Vijayakumar noted that while global growth prospects in the US and China appear uncertain, India’s economy remains relatively strong, with expectations of growth above 6 per cent in fiscal 2025-26. However, he cautioned that the elevated valuations in Indian equities may limit further upside potential in the near term.
Looking Ahead
While the cumulative FPI outflows for 2025 have crossed Rs. 1.01 lakh crore, market watchers believe that India’s economic fundamentals and proactive central bank policies will continue to support investor confidence in the medium term. The ongoing global volatility may keep foreign investors on edge, but India’s resilient growth story and domestic consumption-led economy could help buffer against these external shocks.
As the global macroeconomic environment stabilizes, market participants are closely watching for signs of renewed FPI inflows, which would further reinforce India’s positioning as a key destination for global capital. For now, caution prevails as investors weigh geopolitical uncertainties against India’s underlying economic strength.
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