Foreign Portfolio Investors (FPIs) continued their sustained selling pressure on Indian equities, marking the sixth consecutive session of net outflows on Monday. The overseas investors offloaded stocks worth ₹3,638.4 crore, according to provisional data from the National Stock Exchange, maintaining the bearish sentiment that has characterized their recent market approach.

FPI Selling Momentum Intensifies

The Monday selloff follows a pattern of consistent foreign investor withdrawal from Indian markets. In the previous session, FPIs had offloaded ₹3,769 crore worth of equities, while Thursday witnessed selling worth ₹3,367 crore. This sustained outflow has pushed the total FPI selling beyond a significant milestone.

According to data from the National Securities Depository Ltd., the cumulative outflow from local shares has crossed the ₹15,000-crore mark, reaching ₹15,476 crore so far in 2026.

Domestic Institutions Counter Foreign Selling

While foreign investors maintained their selling stance, domestic institutional investors demonstrated strong buying appetite. These local institutions mopped up shares worth ₹5,839.3 crore on Monday, building on their previous session's purchase of ₹5,596 crore worth of Indian equities. This domestic buying has provided crucial support to market stability amid foreign outflows.

Market Performance Defies Selling Pressure

Despite the sustained FPI selling, Indian equities managed to break their five-day losing streak, ending near the day's high. The recovery was attributed to India-US trade deal hopes and anticipation surrounding the upcoming earnings season.

Both indices experienced significant intraday volatility, falling nearly 0.90% during trading hours before staging a sharp recovery that saw gains of up to 0.50%. Nifty, which had fallen below the 25,000 levels, recovered over 300 points from the day's low to close near 25,800.

Sectoral and Broader Market Trends

The broader market indices presented a mixed picture, with mid and small-cap segments ending in negative territory. Nifty Midcap 150 declined 0.17%, while Nifty Smallcap 250 closed 0.67% lower.

Sectoral performance showed divergence, with most indices posting gains. Nifty Metal and Nifty PSU Bank led the advance, supported by firm metal prices amid supply-side constraints and renewed buying interest. However, Nifty Media and Nifty Realty were among the laggards.

Analysts at Bajaj Broking Research noted that safe-haven assets sustained demand due to persistent geopolitical tensions, helping precious metals extend their rally and supporting the commodities space's outperformance.

Foreign portfolio investors (FPIs) have remained net sellers in the Indian stock market in five of the last seven sessions in January as the record selloff continues into 2025. After a record net outflow of ₹1,66,286.00 crore in 2024, FPIs have additionally sold Indian equities worth ₹11,789.00 crore this month, according to NSDL data. This sustained selling pressure has pushed the Nifty 50 index 1.71% lower so far in January.

Key Factors Driving FPI Exodus

Trump Tariff Threats and Trade Tensions

Trump threatened fresh tariffs on India over the country's continued purchase of Russian oil. A bipartisan US bill proposing tariffs of up to 500% on countries buying Russian oil has received Trump's backing and awaits congressional approval.

The US views India's purchase of Russian oil as helping Russia fund the war in Ukraine, creating fresh hurdles for the already elusive India-US trade deal. India and the US have had six rounds of trade negotiations but have not yet reached an agreement.

Currency Volatility and Dollar Strength

Santosh Meena, Head of Research at Swastika Investmart, identified the resurgent US Dollar and currency volatility as primary drivers. The Indian rupee depreciated nearly 5% in 2024, and continued weakness is eroding dollar returns for foreign investors, prompting them to hedge by exiting emerging markets.

"The recent US military action in Venezuela has spiked global risk aversion, driving capital toward 'safe-haven' US Treasuries rather than riskier emerging market equities. Furthermore, the looming threat of higher US tariffs on Indian exports—stemming from ongoing US-India trade negotiations—is keeping investors on the sidelines until policy clarity emerges," said Meena.

Global Risk Aversion Impact

The US military action against Venezuela has heightened global risk aversion, making riskier assets like emerging market equities less lucrative for FPIs. Nikunj Saraf, CEO of Choice Wealth, believes that after sharp portfolio adjustments in 2024, many FPIs are still in capital-preservation mode, waiting for clearer signals on global policy direction and growth.

Potential Recovery Catalysts

Despite the challenging environment, several factors could attract FPIs back to Indian markets:

Strong Earnings Growth Prospects

MOSL analysts expect earnings to grow 16% year-on-year in Q3FY25, the highest in eight quarters. CLSA noted that India's relative valuations have become more lucrative, which along with steady earnings growth, could bring back investor interest.

Key Recovery Factors

• Currency Stability: Any signal that the rupee has found a floor would reduce hedging costs for foreign investors
• US Fed Policy Clarity: Clear indications toward sustained rate cuts would ease yield differentials and weaken the US dollar
• Trade Deal Progress: Positive breakthrough in India-US trade talks regarding tariff exemptions would de-risk export-oriented sectors
• Crude Price Stabilization: Stable oil prices would support India's current account dynamics and help the rupee

Ross Maxwell, Global Strategy Operations Lead at VT Markets, emphasized that clarity on the US Fed's rate path and the outcome of the Union Budget will be pivotal for FPI flows.

Market Outlook

While global and macro-level headwinds dominate FPI sentiment, the domestic macro environment remains positive. A structural reversal in FPI flows will likely depend on currency stability and resolution of trade tensions. The combination of strong earnings growth prospects and improving relative valuations could make Indian equities more attractive once global uncertainties subside.