FIIs sell shares worth nearly $8 billion in January; third-largest monthly outflow ever

fii outflow

January 2025 has emerged as the worst opening month ever in terms of flows from foreign institutional investors (FIIs) as net sales are nearing the $8 billion mark. Till date, FIIs have been net sellers at $7.8 billion, which is the highest-ever recorded in January.

More importantly, given the heightened selling by FIIs, January could well end up among the worst in terms of monthly outflows. The highest monthly outflows were witnessed in October 2024 ($11.2 billion) and March 2020 (8.4 billion).

In the first two weeks of January, FIIs were the most aggressive sellers in financial stocks, offloading over $1.41 billion. This was followed by significant selling in consumer services ($405 million), power ($360 million), and capital goods ($303 million). Other sectors, including metals & mining, IT, automobiles, and construction, also faced heavy FII outflows, with each witnessing sell-offs exceeding $200 million.

The Sensex and Nifty indices have fallen by 3.5% in January till date, marking their sharpest monthly decline since 2017 and surpassing the 3.07% drop recorded in January 2021. Broader indices like BSE MidCap and BSE SmallCap slumped over 9 percent each so far this month.

Indian equities are facing a lot of headwinds on account of geopolitical tensions, global economic slowdown, elevated interest rates, weak corporate earnings, persistent inflation, and heightened investor uncertainty amid fears of tariff wars following Trump’s re-election as US President.

Additionally, steep valuations in Indian markets have further exacerbated selling pressures. Experts further believe that with the recent sharp fall in equities, India’s equity valuations have contracted significantly, with earnings yields exceeding 5 percent since September 2024.

This contraction reflects a combination of downward revisions to GDP growth and a sharp 130-basis-point increase in US bond yields. Notably, this occurred despite a cumulative 100-basis-point rate cut by the US Federal Reserve since September 2024.

As US bond yields and the dollar index begin to stabilise from their current peaks, Indian equity valuations may stand to benefit, offering potential relief for the domestic market, stated a recent report by ICICI Securities.