FIIs offload equities worth Rs 1.34 lakh thus far in CY25: What should investors do?

The Indian stock market has been experiencing significant volatility due to the substantial outflows by foreign institutional investors (FIIs), which have withdrawn nearly Rs. 1.34 lakh crore from Indian equities in the CY25 thus far, leading to a decline in the Nifty index by about 4.64 per cent year-to-date (YTD), while Sensex during the same period has shed 4.5 per cent.

Furthermore, the broader markets have tumbled even more, with the Nifty Midcap 100 index declining over 13 per cent, while the Nifty Smallcap 100 index has plunged as much as 18 per cent.

Imortantly, the rout has been keep in check as domestic institutional investors (DIIs) have been countering FII outflows by investing heavily, with nearly Rs.1.29 lakh crore invested in less than two months of CY25.

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Dollar strength leading to robust inflows in US markets

The US market is experiencing robust capital inflows, largely driven by a strong dollar, which has increased by over 7.5 per cent on a trade-weighted basis over the past year due to growth and interest rate differentials with major trade partners. The strong dollar signals confidence in US financial institutions and government, making it a magnet for foreign investment, particularly in sectors like technology and manufacturing. However, this trend poses risks for emerging markets incuding India, which may face economic strain due to capital outflows and currency devaluation.

How Indian stock market may perform in the mid to long term amid FII outflows?

Rajesh Sinha, Sr. Research Analyst - Bonanza Portfolio pointed out that the future outlook for the Indian stock market depends on several factors. A recovery in corporate earnings and improved global liquidity could catalyze a market rebound. Additionally, stable macroeconomic conditions and robust domestic demand are expected to support long-term growth. However, global uncertainties, such as US tariffs and geopolitical risks, may continue to impact investor sentiment

How investors should approach markets amid heavy FII sell-off?

Sinha added that in a scenario where FIIs are selling heavily, it is crucial to maintain a long-term perspective as short-term fluctuations often correct themselves over time. Investors should also diversify their portfolios across sectors, for instance, investing in sectors less affected by global trends, such as consumer goods or pharmaceuticals, can provide stability. Furthermore, investors should focus on fundamentally strong companies with robust financials and growth potential, rather than following market trends. Regular portfolio rebalancing is essential to ensure alignment with investment goals.