Mumbai: Overseas investors dumped shares worth ₹49,481 crore in the first half of April, with financial services continuing to face the worst of the foreign capital exodus for the third consecutive fortnight. To be sure, the pace of selling appears to have reduced toward the second-half of the month.

Almost 40% of the selling between April 1 and 15 was in this sector, as it witnessed outflows worth ₹19,152 crore. This comes after foreign investors offloaded shares worth over ₹60,000 crore in the sector in March, which was the highest since 2012.

“The financial services sector has the biggest weight on benchmark Nifty; so when there is broad-based selling, banking and financial services’ share in foreign selling tends to be higher,” said U R Bhat, co-founder & director, Alphaniti.

The intensity of foreign selling increased amid the US-Iran conflict since February 28, with the banking, financial services and insurance (BFSI) sector bearing the brunt of the outflows.

“Selling pressure has eased after the first-half of April, as a ceasefire and the possibility of a deal signalled that peak anxiety may be behind us,” said Pankaj Pandey, head of retail research at ICICI Securities.

In the first-half of April, consumer services witnessed foreign outflows worth ₹5,336 crore while healthcare and automobiles saw selling worth ₹4,481 crore and ₹3,704 crore in the same period. Overseas investors had reduced stake in both sectors in March.

Auto Stocks
Global investors sold shares worth ₹3,704 crore in the automobile sector after withdrawing shares worth ₹12,498 crore in March. Bhat said global investors will need some time to make up their mind on allocating to India and outflows could accelerate before any revival in foreign inflows.

“There have been news reports that Iran is not willing to meet and negotiate with the US on Wednesday – when the ceasefire ends,” said Bhat. “This could jeopardise earnings trajectory as oil prices may remain high as long as Strait of Hormuz remains shut – and keep foreign capital at bay.”

Overseas investors sold shares worth ₹67,081 crore across 21 sectors in the second-half of March- the highest fortnightly selling since second-half of October 2024 when they dumped shares worth ₹71,502 crore.

“Global investors remain cautious and are not in a hurry to deploy funds as they still view Indian market valuations as rich,” said Pandey. “The only solace has been strong domestic inflows, despite limited returns over the past 18 months.”

Foreign inflows this fortnight stood at ₹1,340 crore across power, utilities, diversified and the sector earmarked as ‘Others’, the lowest fortnightly inflows since first half of January 2025.

Foreign investors have pulled out Rs 88,180 crore (about USD 9.6 billion) from Indian equities so far this month, weighed down by escalating tensions in West Asia, a weakening rupee and concerns over the impact of elevated crude oil prices on India’s growth and corporate earnings.

The sharp sell-off follows a strong rebound in February, when foreign portfolio investors (FPIs) pumped in Rs 22,615 crore, the highest monthly inflow in 17 months, according to NSDL data.

With the latest withdrawals, total FPI outflows have crossed the Rs 1 lakh crore-mark so far in 2026.

In March (till March 20), FPIs have remained net sellers on every trading day, offloading equities worth Rs 88,180 crore in the cash market. However, the outflow is still lower than the record monthly exodus of Rs 94,017 crore seen in October 2024.

Market participants attributed the sustained selling pressure to global macroeconomic headwinds and heightened geopolitical uncertainty.

Vaqarjaved Khan, Senior Fundamental Analyst at Angel One, said the primary trigger has been the sharp escalation in Middle East tensions, with fears of prolonged conflict and potential disruption to the Strait of Hormuz pushing Brent crude above USD 100, fuelling a classic risk-off move.

He added that the trend has been exacerbated by the rupee hovering near Rs 92 against the US dollar, elevated US bond yields, profit-booking after the February inflows, and mixed Q4 earnings outlook indicating margin pressures in key sectors.Himanshu Srivastava, Principal Manager Research at Morningstar Investment Research India, said the rising US Treasury yields as another key driver.

Higher yields have improved the relative attractiveness of dollar-denominated assets, prompting capital to move away from emerging markets like India. This shift is typically accompanied by a stronger dollar and tighter global liquidity, further dampening sentiment towards emerging market equities.

Echoing similar concerns, V K Vijayakumar, Chief Investment Strategist at Geojit Investments, said the conflict in West Asia has intensified FPI selling.

He noted that weakness in global equity markets, continued rupee depreciation and worries over the impact of high crude prices on India’s growth and earnings have all weighed on investor sentiment.

Sectorally, financial services bore the brunt of the selling, with FPIs offloading shares worth Rs 31,831 crore during the fortnight ended March 15.

Looking ahead, analysts expect the near-term outlook to remain cautious.

Khan said continued volatility in oil prices or further escalation in geopolitical tensions could sustain outflows. However, any signs of de-escalation, strong support from domestic institutional investors (DIIs), or positive earnings surprises may help stabilise markets and trigger selective buying.

According to Vijayakumar, a reversal in FPI flows is likely only once geopolitical tensions ease and broader market stability returns.

ET Intelligence Group: Valuations of Indian equities have eased after the recent sell-off but that may still not be enough to lure foreign funds back here as the country’s main share indices continue to trade at a premium to emerging market peers.

At the end of Tuesday’s trading session, the NSE Nifty 50 and the BSE Sensex had a trailing price-earnings (P/E) multiple of 21.2 times and 21.3 times, respectively. This compares with their P/Es of 22.8 at the beginning of the current calendar year. The Indian benchmark P/Es have softened from the levels of over 23 two years ago. This shows the market is cheaper than it used to be, tempering investor concerns of excessive valuations, which, along with slowing growth, has contributed to foreign investors’ risk-aversion towards India.

The valuation premium of Indian benchmarks has now narrowed with respect to nine out of 12 major global equity indices. For Instance, Nifty’s premium over the Hong Kong benchmark has reduced to 1.8 times from 2.3 times at the beginning of the year. The premium with respect to the German DAX and French CAC 40 has fallen to around 1.2 from 1.5 by similar comparison. In the case of other benchmarks, including the US Dow Jones and S&P 500, Indian benchmarks continue to trade at a marginal discount, as they did earlier.

The benchmarks have shed over 8% in 2026 so far, including a 4% drop since the beginning of March as investors turn cautious amid the rising concerns over the impact of the West Asian conflict between Iran and Israel. On a year-to-date basis, India has the second-worst performing equity market among major markets in the world behind Indonesia where the local benchmark has lost 14%.

Agreements with the US and the European Union helped ease fears that geopolitics and tariff turbulence would continue to weigh on the $5.2 trillion market. That relief, however, has done little to offset concerns over corporate fundamentals, especially after Indian stocks posted the worst January returns among major global peers.

Earnings growth has lagged for months, the rupee has weakened, and foreign investors have treated India as a source of funding to chase artificial intelligence-driven rallies in China, Taiwan and South Korea. Adding to the gloom, Indian tech heavyweights such as Tata Consultancy Services Ltd. and Infosys Ltd. have been swept up in a global software selloff, as Anthropic’s latest AI advances threaten to disrupt traditional outsourcing business models.

“India will continue to be seen as a funding market, at least for now,” said Vivek Dhawan, a fund manager at Candriam NV. “In terms of earnings growth recovery, where we see weakness is on the software services side.”

Earnings for the MSCI India Index are projected to grow about 8.3% over the next year, trailing regional peers, according to data compiled by Bloomberg. That compares with forecast growth of roughly 16% for China, about 108% for South Korea and close to 30% for Taiwan.

The index trades at about 22 times forward earnings estimates, in-line with its long-term average. Relative to other emerging markets, however, India still trades at a premium.

The valuations are less attractive, “accounting for the growth trajectory and scope for earnings recovery, which is likely to stay selective rather than broad based,” said Ecaterina Bigos, chief investment officer Asia ex-Japan, at BNP Paribas Asset Management’s at AXA IM. The balance “points to a cautious optimism on Indian equities, with focus on strategic areas of growth for now.”

The sentiment underscores one of the most challenging periods since India emerged as a favorite among global investors betting on the world’s fastest-growing major economy and its vast domestic market. Persistent geopolitical risks and pockets of economic slowdown have dulled the appeal of Indian equities since the start of 2025.

The result was India’s worst underperformance versus emerging markets in decades last year. Foreign investors pulled a record $19 billion from local stocks even as economic growth outpaced rivals. Over the past 12 months, the MSCI India Index has gained 8%, with dollar returns eroded by rupee weakness. In contrast, the MSCI Emerging Markets Index has surged almost 38%.

To be sure, there are signs of tentative improvement. Indian equities are on track for a second straight week of foreign inflows — a streak not seen since October.

“The tariffs were hurting Indian exporters and, more importantly, significantly hurting the rupee,” said Ashish Chugh, head of global emerging-market equities at Loomis, Sayles & Co. “That created a negative feedback loop — rupee weakness led to foreigners selling equities, which led to more rupee weakness. The trade deal stops that loop and, in my view, reverses it.”

US President Donald Trump signed an executive order to eliminate a punitive 25% tariff on Indian goods imposed for the country’s purchase of Russian oil. A joint statement by both the countries showed that a so-called “reciprocal” duty on Indian goods was also cut to 18% from 25%.

The new rate offers significant relief to Indian exporters after they were tariffed at 50%, among the highest in Asia. The South Asian nation also agreed to purchase $500 billion worth of American products over five years including aircrafts, graphics processing units and energy, while promising to reduce non-tariff barriers for US companies.

The rupee now looks undervalued, with India’s real effective exchange rate near a decade low, according to Chugh. He expects macroeconomic fundamentals to remain supportive, with earnings accelerating next year after a period of subdued profit growth.

More bullish investors argue that the trade deals, combined with the recent state budget, could ignite a major rally.

“Now’s the time to buy India,” said James Thom, senior investment director of Asian equities at Aberdeen Investments, who said his Asia ex-Japan equity portfolio has been consistently overweight India. “Quality companies are well positioned for the next cycle.”

Markets initially welcomed the tariff truce, with the US cutting its levy on Indian goods to 18% from 25% — lower than for most Asian peers — while scrapping an additional 25% punitive duty linked to purchases of Russian oil. Indian stocks jumped the most in eight months after US President announced the deal, while the rupee gained 1.1% against the dollar. The longer-term impact, however, remains uncertain.

While the agreement acts as a “booster of confidence,” it does not necessarily change his view on GDP growth outlook over the next 12 months or that for equity earnings, Sanjay Mookim, JPMorgan Chase & Co.’s India strategist said in an interview with Bloomberg Television on Friday.

While the world has moved to 2026, the foreign money outflow trends sustained over the first two trading sessions with Foreign Institutional Investors (FIIs) selling Indian equities worth Rs 7,608 crore.

The FIIs were net sellers in December, offloading domestic shares worth Rs 22,611 crore during the month while taking total outflows in 2025 to Rs 1,66,286 crore.

Commenting on the current trends, V K Vijayakumar, Chief Investment Strategist at Geojit Investments called it the worst selling by FIIs since they started investing in India.

The year 2025 ended on a grim note for foreign investors, with FIIs clocking record equity selling in India as they sold equities worth Rs 2.40 lakh crore in the secondary markets in CY2025, Vijayakumar said, highlighting that their equity investment of Rs 73,909 crore via the primary market during the year reduced the impact, though.

In December alone, FIIs sold shares worth Rs 30,332 crore in the secondary markets.

Usual culprits

Vijayakumar blamed the relatively elevated valuations in India and the AI trade as major factors behind the FII exodus in the year gone by. Their sustained selling has also contributed towards a significant drop in Indian rupee against the US dollar.

The INR has been the worst performing major currency this year, slipping nearly 5% through the year.

2025 FII snapshot

FIIs sold shares worth Rs 11,766 crore in Q3 after offloading shares worth Rs 76,619 crore in the third quarter of CY25. They reversed the buying trends seen in the April–June period when inflows totalled Rs 38,673 crore. The year had opened on a sharply negative note, with foreign investors pulling out a massive Rs 1,16,574 crore during the January–March quarter.

2026 outlook

Vijayakumar expects 2026 to likely witness some changes in the FII strategy. “Significant improvement in India’s fundamentals are likely to attract net FII inflows in 2026. Robust GDP growth and prospects of improvement in corporate earnings in 2026 augur well for positive FII flows in 2026,” the Geojit analyst said.

Nilesh Jain, Head Vice President – Equity Research at Centrum Broking said that he expected 2026 to be better than 2025 while pegging Nifty’s December 2026 target at Rs 29,731, implying an upside of 13%. Improving macro indicators, stronger Q2 GDP growth, benign inflation and an end to corporate earnings downgrades underpin the positive view, he said.

India underperformed, ranking at the bottom of the table, with only 10.5% (6% in USD), marking its weakest performance among EMs in 30 years, on the back of rupee depreciation and consistent FII selling. India was also subject to the highest level of punitive tariffs of 50% by the US and a trade deal could not be negotiated till the end of the year,” he said, summing-up the root causes for Nifty’s underperformance of the last year.

(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)

Mumbai: As global fund managers reassess valuations of various markets afresh in 2026, two aspects of Indian equities will stand out: the Price to Earnings Ratio of its key indices is below their longer-term averages, while they are still more expensive than their regional peers.

The Nifty is trading at a PE ratio – a key valuation measure – of 22.75 times below its five-year average reading of 24.51, underscoring that valuations are cheaper today. This is a silver lining for Indian markets after a year marked by foreign investor apathy and underperformance.

Yet that alone may not be a reason to rush back into India. Nifty’s PE ratio is still above its emerging markets peers such as China, Korea and Hong Kong, among others, where valuations range between 12 times and 18 times. Taiwan equities, a bet on semiconductor chips, are closest to India in valuations across Asia.

US equities, still on a record-breaking spree defying simmering concerns of overheating, remain the most expensive market. Resilient in the face of Donald Trump’s tariff onslaught, stubborn inflation and economic uncertainty, Wall Street’s rally has endured, led by the relentless rise in tech stocks.

As 2026 sets in, expectations are high that global investors will return to India after nearly 15 months of mostly staying away. For now, Indian stocks remain off their radar, but a reversal in the tepid earnings growth, a US-India tariff deal or even cracks in the US AI trade could be triggers for a relook.

Global brokerage firm Goldman Sachs has upgraded India back to Overweight, citing a revival in growth momentum and an improved earnings outlook. The firm noted that Indian equities, which had underperformed peers through 2024, are now poised for a turnaround supported by stronger policy measures, stabilising profits, and easing macro headwinds.
According to Goldman Sachs, the upgrade reflects growing optimism over India’s medium-term prospects amid improving domestic demand and supportive monetary policy. The brokerage expects the Nifty index to reach 29,000 by the end of 2026, implying an upside of about 14% from current levels, as structural drivers regain traction and foreign investor sentiment improves.

Foreign portfolio investors (FPIs) remained net sellers of Indian equities in September, withdrawing Rs 23,885 crore (around USD 2.7 billion) and taking year-to-date outflow to Rs 1.58 lakh crore (USD 17.6 billion).

This marks the third consecutive month of withdrawals, following heavy outflows of Rs 34,990 crore in August and Rs 17,700 crore in July, data from depositories showed.

The latest selling was driven by multiple factors, like US trade and policy shocks — steep tariff hikes of up to 50 per cent on Indian goods and a one-time USD 100,000 H-1B visa fee, which hurt sentiment toward export-oriented sectors, especially IT, Himanshu Srivastava, Principal, Manager Research, Morningstar Investment Research India, said.

The rupee’s fall to a record low level also added currency risk, while relatively high valuations of Indian equities prompted rotation to other Asian markets, he added.

Despite the ongoing sell-off, some analysts believe conditions may gradually turn in India’s favour.

Vaqarjaved Khan, Senior Fundamental Analyst at Angel One, noted that valuations have now become more reasonable and that factors, such as a cut in GST rates and a pro-growth monetary policy, could help rekindle foreign interest.”India remains the fastest-growing major economy globally,” Khan said, adding that the upcoming earnings season and macroeconomic data will play a key role in determining FPI flows in the near term.Echoing this, Srivastava pointed out that a sustained FPI turnaround will hinge on tariff clarity, currency stabilisation, earnings visibility, and a supportive global rate environment. If these factors improve, India’s strong structural growth story could draw foreign investors back selectively.

Meanwhile, debt markets witnessed net inflow, FPIs invested about Rs 1,085 crore under the general limit and Rs 1,213 crore through the voluntary retention route in September.

VK Vijayakumar, Chief Investment Strategist at Geojit Investments, observed that FPIs’ strategy of shifting funds from India to other markets has so far yielded better returns, as Indian equities have underperformed most global markets over the past year, with one-year returns in negative territory.

Round-up of South Korean financial markets:

** South Korean shares rose to a record high on Tuesday as chipmakers rallied on optimism ahead of U.S. peer Micron Technology’s results, while drugmaker Celltrion jumped on a deal to acquire a U.S. factory to avoid tariffs.

** The benchmark KOSPI ended up 17.54 points, or 0.51%, at 3,486.19, its highest closing level on record. During the session, it hit an all-time high at 3,494.49.

** The electric & electronic devices sector rose 1.66% as chipmaker Samsung Electronics gained 1.44% and peer SK Hynix jumped 2.85%.

** “The semiconductor sector rose ahead of Micron’s earnings, which are expected to be better than forecast,” said Seo Sang-young, an analyst at Mirae Asset Securities.

** Micron Technology is scheduled to report its latest results later in the day. ** Celltrion rallied 8.93%, its biggest daily gain since January 2024, after the drugmaker announced that its U.S. subsidiary had acquired Imclone Systems LLC from Eli Lilly in the U.S. ** The pharmaceutical sector rose 2.96% as peer durgmaker Samsung BioLogics climbed 0.97%.

** Among other index heavyweights, battery maker LG Energy Solution climbed 2.29%, while Hyundai Motor and sister automaker Kia Corp were up 0.46% and 0.88%, respectively. ** Of the total 930 traded issues, 270 shares advanced, while 601 declined. ** Foreigners were net buyers of shares worth 303.3 billion won ($217.7 million). ** The won was quoted at 1,392.6 per dollar on the onshore settlement platform, 0.08% lower than its previous close at 1,391.5.

** The most liquid three-year Korean treasury bond yield rose by 0.9 basis point to 2.464%, while the benchmark 10-year yield fell by 0.7 basis point to 2.823%. ($1 = 1,393.2600 won).

Mumbai: Overseas fund managers stepped up the selling of Indian equities in the first half of August as tariff uncertainty, a weaker rupee and disappointing corporate earnings deepened risk-off sentiment. Financial services and information technology stocks, which have the highest weight in the Sensex and Nifty, bore the biggest brunt of foreign investors’ cautious approach.

Foreigners sold shares worth ₹34,022 crore across 16 sectors in the first half of August, according to data from NSDL, after pulling out ₹34,974 in the second half of July and ₹10,541 in the first half of last month.

“Muted earnings, strong pipeline in the primary markets and the tussle on the tariff front have kept foreign investors wary about India,” said Sriram Velayudhan, senior vice president, IIFL Capital.

The Sensex and Nifty have gained up to 0.8% in August so far after falling 2.9% in July.

Financial services witnessed the highest foreign selling in the August 1-15 period as investors dumped shares worth ₹13,471 crore.

“Banks are expected to witness muted credit growth, and the Q2 growth in turn is also likely to be flattish,” said Pranay Aggarwal, director and CEO, Stoxkart. “The uncertainty on India-US relations has also led to overall outflows.”Between March and June, foreign investors bought bank shares worth ₹45,657 crore. However, sentiment soured in July, when they offloaded over ₹5,000 crore.”There has been some profit booking in financial services after the recent outperformance, reflecting expectations of near-term margin compression and a cooling credit growth cycle,” said Bhavik Joshi, business head, INVasset PMS. “Recent quarterly trends have shown pressure on bank margins, leading investors to turn more cautious on the sector.” The IT sector continued to see foreign selling. This amounted to ₹6,380 crore in the first half of the month as the sector underperformed the market due to weak earnings amid macroeconomic uncertainty.”Technology spending remains weak, which is likely to weigh on Indian IT companies’ margins,” Joshi said. “While the prospect of US rate cuts offered a temporary lift to IT stocks, the sustainability of that momentum is limited, as global clients remain conservative on discretionary tech outlays.

These stocks have, however, seen some respite of late due to the US Federal Reserve’s guidance for an interest rate cut in September.

OTHER SECTORS
Foreign investors offloaded shares worth Rs 4,091 crore in the oil and gas sector, after sales of over Rs 3,000 crore in July. The oil and gas sector has remained under pressure amid geopolitical and trade uncertainties, said analysts.

“Recent signals from the US on India’s continued crude imports from Russia have created an overhang, with markets now watching closely for clarity toward the end of August,” said Joshi.

Global investors divested shares worth over Rs 2,000 crore in the power and healthcare sector in the first half of the month. Realty, fast moving consumer goods (FMCG) and consumer durables saw foreign outflows worth over Rs 1,000 crore.

WHAT DID FOREIGNERS BUY
Overseas investors bought shares worth Rs 13,046 crore in the first 15 days of August across seven sectors. Telecommunications continued to be a favourite, as they invested Rs 7,446 crore in the first half of August after receiving inflows worth Rs 28,158 crore between January and July.

FOREIGN FUND OUTLOOK
The outlook for emerging markets has improved with the Fed signalling a rate cut but India may not be a big beneficiary of any risk-on mood.

“The US Federal Reserve has guided for an interest cut which historically translated to riskon sentiment favourable for emerging markets but other countries are trading at attractive valuations compared to India,” said Velayudhan.

An interest rate cut in the United States could weaken the dollar, resulting in investors looking at options outside dollar-based assets. Some money managers see the scope of foreigners returning to India given that they have been underweight on the country’s equities. Nonetheless, the purchases could be in select sectors.

Joshi said, “Following the accelerated foreign sell-off through July and August, we anticipate a potential turnaround in flows if the dollar continues to soften and global liquidity improves.”

“Importantly, these inflows likely to be directed toward non-traditional sectors such as capital goods and select metals, where earnings visibility and operating leverage are strengthening,” he added