The Indian stock market has rebounded from the losses incurred due to Trump-era tariffs, yet foreign institutional investor (FII) activity remains subdued in 2025. Despite a brief resurgence in buying during March, FIIs have returned to net selling. This raises the question: will there be a shift in investor sentiment in the near future?
Global Trends Impacting Indian Markets
India’s current FII scenario reflects a broader trend observed across emerging markets. In April, key emerging economies, with the exception of Taiwan, experienced negative foreign portfolio investment (FPI) flows. India faced significant outflows totaling $1.877 billion, ranking alongside countries like Brazil, Indonesia, and South Korea. Taiwan, however, enjoyed a net inflow of $446 million, showcasing its resilience amid global market fluctuations.
Current Economic Indicators
As we assess the financial landscape, crucial indicators such as the Dollar Index, gold prices, and U.S. bond yields are at pivotal points.
Dollar Index Hits 2025 Lows
The Dollar Index has fallen dramatically, reaching its lowest point in 2025, down over 8% from January’s peak of 110. Currently trading below 100, it has experienced a notable decline of more than 3% in just five trading days. Analysts have pointed out that the dollar’s strength has historically influenced investment in dollar-denominated assets. However, a sudden shift in investment strategies is unlikely, as global investors assess market conditions. Many experts anticipate a potential increase in foreign investments in India during the latter half of 2025.
Gold Surges to New Heights
Contrasting with the dollar’s decline, gold has seen a remarkable rise, now trading above $3,300 per ounce. This surge can be attributed to several factors, including heightened geopolitical tensions, tariff uncertainties, and increased central bank purchases globally. Kaynat Chainwala, AVP of Commodity Research at Kotak Securities, highlighted that gold reached a record $3,311.70 per ounce, driven by escalating trade war concerns and tightening U.S. export regulations towards China. Investors are also keenly awaiting insights from upcoming U.S. retail sales data and remarks from Federal Reserve Chair Jerome Powell.
Rising U.S. Bond Yields
The 10-year U.S. Treasury yield has surged over 70 basis points, reaching a near two-month high of 4.59%. While President Trump’s unexpected 90-day pause on reciprocal tariffs has eased some market anxieties, overall investor sentiment remains cautious. Reports suggest a possible large-scale withdrawal from U.S. assets might already be in motion.
FII Selling Trends: A Closer Look
Examining March’s data, it’s evident that ongoing concerns about global inflation, stricter monetary policies from major central banks, and geopolitical instability have compelled FIIs to pull back from emerging markets like India. Notably, significant outflows were recorded in various sectors:
- Consumer Services: $353 million
- Automobile & Auto Components: $327 million
- Oil & Gas: $397 million
- Cement & Consumer Durables: $183 million and $174 million, respectively
Future Outlook for FII Investments
With current global dynamics, the question arises: can we expect FIIs to return soon? Jaykrishna Gandhi, Head of Business Development at Emkay Global Financial Services, believes that conditions are aligning for a potential market rally in India. He mentioned, "Earnings estimates are stabilizing, and we anticipate the downgrading cycle to come to an end. Valuations have moderated, and improved visibility for the U.S. economy is an encouraging sign. We maintain our Nifty target at 26,000 for FY26."
In summary, while the Indian market has shown signs of recovery, the path for FII investments remains uncertain amidst global economic shifts. Investors and analysts alike will be closely watching future developments for potential opportunities.
