FIIs offload ₹25,564 cr worth of Indian equities in Aug; can Fed’s Sept rate cut revive inflows?

Foreign institutional investors (FIIs) remained net sellers in August, pulling out ₹25,564 crore from Indian equities amid global trade uncertainty and a cautious undertone ahead of U.S. Federal Reserve Chair Jerome Powell’s speech at Jackson Hole. However, domestic institutional investors (DIIs) continued to support the market by infusing ₹66,184 crore month-to-date, buoyed by optimism around a GST rate overhaul and S&P’s upgrade of India’s sovereign credit rating.

With Fed Chair Jerome Powell signaling the possibility of a rate cut in September, investors will be watching closely to see whether improved global liquidity conditions can provide a trigger for a revival in FPI inflows into India.

Market analysts believe that, in the near term, FIIs may reduce their selling as the dollar weakens on rising expectations of a rate cut by the U.S. central bank. A softer dollar and improved global liquidity conditions could ease pressure on emerging market flows, including India.

“In the near term, FIIs may reduce their selling since the dollar is weakening in response to rate cut expectations from the Fed in September. The Fed chief Jerome Powell’s Jackson Hole speech indicates a rate cut in September," said V.K. Vijayakumar, Chief Investment Strategist, Geojit Investments.

FIIs have turned cautious on Indian equities following U.S. President Donald Trump’s decision to impose an additional 25% tariff on India as a penalty for its continued purchase of Russian oil amid the Ukraine war. This led to equity outflows of ₹25,564 crore through the exchanges up to August 23, taking the year-to-date tally to ₹1,57,440 crore.

In July alone, FIIs offloaded over ₹47,666 crore worth of equities, marking the third-highest monthly outflow of 2025. February saw the second-highest outflows at ₹58,988 crore, following massive net sales of ₹87,374 crore in January, according to exchange data.

Sector-wise, FIIs were net sellers in banking and financials, as this segment accounts for the bulk of their assets under custody. They also trimmed exposure to IT stocks amid weak growth prospects and limited earnings visibility. However, they maintained consistent buying interest in telecom and capital goods.

According to Vijayakumar of Geojit Investments, FIIs have been exiting the secondary market and buying in the primary market as Indian equities remain highly valued compared to other markets, particularly emerging peers.

“FIIs have been sellers in the bond market, too. Since FIIs continue to invest through the primary market/QIP route, the principal reason for selling through the exchanges is the high valuations in India relative to other markets, particularly emerging markets,” he said.

Echoing the same, Vipul Bhowar, Senior Director and Head of Equities, Waterfield Advisors, said, “When we examine the data for secondary and primary market inflows, it becomes evident that FIIs are still participating in the primary market. This indicates their ongoing investment in new themes and businesses, while they are reducing their exposure to sectors that are experiencing slower growth."

Key triggers for the market this week

The Indian equity market ended higher for the second consecutive week, with benchmark indices NSE Nifty50 and BSE Sensex adding nearly 1% each, settling at 24,870.10 and 81,306.85, respectively. Broader indices also ended in positive territory, gaining around 2% each, in line with the positive market tone. On the sectoral front, autos, realty, and FMCG were among the top performers, while weakness in banking and financials capped overall momentum.

This week, investors will keep an eye on domestic macro data releases, including the HSBC Manufacturing, Services, and Composite PMIs, along with the key IIP and GDP prints. On the global front, geopolitical developments and the market reaction to any dovish undertone from the U.S. Fed Chair’s Jackson Hole remarks will remain key triggers, said Ajit Mishra, SVP, Research, Religare Broking.

“Given this backdrop, maintaining a measured long bias is prudent, with staggered buying on dips in quality names where earnings visibility remains strong. Defensive sectors such as pharmaceuticals and select consumption-driven value chains could serve as stabilisers, while policy beneficiaries from the GST overhaul in consumption ecosystems may continue to provide opportunities,” he said.

Mishra advised investors and traders to manage event risks cautiously by trimming leveraged positions ahead of key domestic and global data, and redeploying selectively once volatility subsides. He stressed the importance of maintaining tight stop-losses around recent swing levels, particularly in light of the ongoing underperformance in the banking and IT sectors.