FII Outflows Hit ₹11,778 Crore in July: 3 Reasons Behind the Exit

Foreign Institutional Investors (FIIs) have sold Indian equities worth ₹11,778 crore in just the first 15 days of July 2025. This is slightly more than the ₹11,773 crore they bought in May, showing a shift in sentiment. Overall in 2025, they’ve sold over ₹1.22 lakh crore. So, what’s behind this cautious approach?

India-US Trade Deal Delay

A major concern for FIIs is the delay in finalising the India-US trade agreement. Talks are still ongoing with no clarity, even as the August 1 deadline nears. Investors are anxious due to the uncertainty around how sectors like agriculture and dairy will be treated in the final deal. India’s firm stance on protecting these sectors has added to the wait-and-watch approach.

Weak Q1 FY26 Earnings So Far

FIIs are also worried about Q1 FY26 earnings. After a strong Q4, the current earnings season has disappointed. Major tech firms like TCS and HCL Tech have reported weak results due to geopolitical challenges and delays in closing deals. As a result, investors are being cautious and investing less in Indian equities.

High Valuations Compared to Other Markets

Valuation is another major factor. Indian markets are trading at a significant premium compared to other emerging markets. The MSCI India index is valued at 23.3 times earnings, much higher than its long-term average and 82% more expensive than other EM peers. This makes India less attractive in the short term, especially when cheaper options are available globally.

Also Read: Cummins India Share Price Gains 2% on BEES Launch for Clean Energy Transition!

Primary Market Still a Bright Spot

Interestingly, FIIs are still active in the primary market, investing in IPOs and Offer-for-Sale (OFS) opportunities, even as they reduce exposure in the secondary market.

Conclusion

The recent FII outflow in July reflects growing investor concerns over global trade negotiations, weak corporate earnings, and high market valuations. While India remains a long-term favourite, in the short term, FIIs appear to be adopting a cautious approach, waiting for clarity and better value before making bigger bets.

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