Key Points

The secondary market outflows by FIIs in 2025 saw the highest level of foreign selling in India's markets to date. However, domestic institutional investors (DIIs) have pumped in over Rs 4 lakh crore into the Indian stock market this year, the largest inflow by this category in the cash market during the first seven months since 2007.

In just seven months of 2025, DIIs accounted for over 80 per cent of total inflows for 2024, providing essential support to the market. DII inflows YTD in 2025 reached 2.2 per cent of the average Nifty market capitalisation, marking the highest level since 2007.

This is a significant increase from 1.4 per cent in 2024 and significantly higher than the 0.6 per cent recorded in 2023.

Indian retail investors also remain unfazed. They invested a whopping Rs 427 billion ($4.9 billion) into equity mutual funds in July. Equity mutual funds saw the highest inflow during July, even as foreign funds withdrew $3 billion in the same month.

Foreign institutional investors (FIIs) have net sold over Rs 1.5 lakh crore in the secondary market year-to-date, surpassing all previous annual records, according to NSDL data. Analysts suggest that slowing corporate earnings, unattractive valuations, increased geopolitical uncertainties, and comparatively cheaper valuations in overseas markets are driving the sell-off.

The markets in the US, China, and Europe present cheaper valuations and comparatively higher returns in the near term. Despite India being the fastest-growing major economy, current geopolitical uncertainties have led portfolio managers to move from a “buy-and-hold” strategy to tactical asset allocation.

Uncertainty over trade deals with the United States and a possible extension of US-China negotiations are diverting foreign institutional investment flows. Indian investors look forward to US President Donald Trump's meeting with Russian President Vladimir Putin on August 15, as any positive outcome could cool down tariff-related uncertainties.

- IANS