Foreign institutional investors (FIIs) staged a brief and tentative return to Indian equities, only to turn sellers again in March as escalating tensions in West Asia rattled global risk sentiment.
So far this month, FIIs have pulled out $8.3 billion from Indian markets, reversing the buying momentum seen in February and signalling a shift towards caution amid geopolitical uncertainty.
The recent outflows come even as FIIs reshuffled their portfolios, raising exposure to industrials and energy stocks to 13- and 17-month highs, respectively. This reallocation was largely funded by aggressive trimming of financials, indicating a tactical sectoral shift rather than a broad-based exit.
In February, however, the mood was markedly different. FIIs had turned net buyers, investing $1.7 billion in Indian equities following the interim India-US trade deal, which boosted investor confidence and improved risk appetite towards emerging markets.
A deeper look at the flows shows that the February buying was driven primarily by non-India dedicated active funds, which account for nearly 67% of total FII assets under management (AUM). These funds pumped in $6.6 billion into Indian equities during the month.
India-dedicated passive funds, though smaller in size at 4% of FII AUM, contributed an additional $0.5 billion in inflows.
On the other hand, selling pressure came from non-India dedicated passive funds, which make up about 24% of FII AUM, as they offloaded $5.2 billion worth of equities. India-dedicated active funds, accounting for 5% of AUM, sold a relatively modest $0.3 billion.
The sharp reversal in March underscores how quickly global cues, particularly geopolitical risks, can alter foreign investor sentiment, even as underlying domestic fundamentals remain intact.
