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FII Confidence in India: Why Corporate Earnings and US Trade Deal Hold the Key

Foreign investors are pulling money out of India at a rapid pace, causing significant market losses. Analysts point to two main factors needed to restore their confidence: stronger corporate earnings and a finalized US-India trade deal. The continuous fall of the rupee is also a major concern, as it fuels further selling. All eyes are now on the upcoming Union Budget and signals from the US Federal Reserve for any market turnaround.

Key Points: FII Confidence Needs Stronger Corporate Earnings and US-India Deal

  • FIIs sold a net Rs 33,598 crore in January, the highest monthly outflow since August 2025
  • Sustained selling led to a 2.5% weekly Nifty decline and Rs 16 trillion market cap erosion
  • Weak sentiment stems from rupee depreciation, trade deal delays, and unimpressive Q3 results
  • Market eyes Union Budget 2026 and Fed guidance for potential short-covering triggers
2 min read

FII confidence in Indian market to resume with stronger corporate earnings, US-India deal

Analysts say FII confidence hinges on Q4 earnings and a US-India trade deal, as sustained selling causes market decline and rupee depreciation.

"This is the biggest uncertainty weighing on the market now. - Dr VK Vijayakumar, Geojit Investments"

New Delhi, Jan 24

If foreign institutional investor (FII) confidence in Indian market is to resume, corporate earnings have to improve in the next quarter (Q4) and the US-India trade deal should happen, analysts said on Saturday.

While the former is likely in the January-March quarter (Q4 FY26), there is no clarity at all on the timeline of the latter.

"This is the biggest uncertainty weighing on the market now," said Dr VK Vijayakumar, Chief Investment Strategist, Geojit Investments Ltd.

FPIs not only continued their selling spree in the week ended January 23, but also increased the intensity of their selling.

Total FPI selling in the equity market this month (through January 23) stood at Rs 33,598 crore, as per NSDL data. This the highest monthly selling figure since August 2025.

"Sentiments remained very weak due to a combination of factors such as sustained rupee depreciation, lack of any finality regarding US-India trade deal and unimpressive Q3 results, so far, which are not indicating any pick up in corporate earnings," said Vijayakumar.

The sustained selling by FIIs has led to 2.5 per cent decline in Nifty for the week ending January 23, resulting in erosion of Rs 16 trillion of market cap in a week, said analysts.

A major factor that pushed FII selling has been the continuous decline in the rupee which touched Rs 91.96 to the dollar on Friday.

Market participants believe that the delay in the US-India trade agreement will widen India's trade and current account deficits further impacting the rupee. Sustained FII selling is in anticipation of this rupee depreciation.

Investors are keeping an eye ahead for cues from Union Budget 2026 and guidance from the Fed on the trajectory of interest rate cuts. Analysts maintain that elevated FII short positions, oversold momentum indicators, and pre-Budget positioning could trigger bouts of short covering.

- IANS

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Reader Comments

P
Priyanka N
Q3 results were indeed disappointing. Companies need to show better growth, not just cost-cutting. Hoping Q4 brings some cheer. The Budget will be crucial for setting the tone. 🤞
R
Rahul R
Why are we so dependent on FII mood swings? Our domestic institutions and retail investors should have the strength to support the market. Time to build a more self-reliant (Aatmanirbhar) market ecosystem.
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Sarah B
Working in a US-based MNC here, the trade deal delay is a constant topic. It's not just about tariffs; it's about predictability for long-term investments. Both governments need to finalize this for the sake of job creation and growth.
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Aman W
With all due respect to the analysts, this feels like stating the obvious. We know earnings need to improve and the deal needs to happen. The question is *how* and *when*. The lack of clarity is the real killer.
K
Kavya N
This is a classic buying opportunity for long-term investors. Markets go through these phases. Focus on good companies with strong fundamentals, not quarterly FII flows. India's growth story is intact. 💪
M
Michael C
The Fed's interest rate decision will be a bigger global factor than the US-India deal in

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