In recent months, foreign institutional investors (FIIs) have been steadily pulling out of Indian equities, amplifying market volatility and raising concerns about liquidity.
A financial adviser on X (formerly Twitter) noted that FIIs have been withdrawing from multiple emerging markets, including Brazil, Indonesia, Korea, and Malaysia since September 2024.
"“Do you think FII are selling Indian markets because of LTCG or are we falling because of a statement made by the SEBI chief? That's a little emotional, to say the least. This is the chart of #EMXC - iShares MSCI Emerging Market ex-China. FIIs have been dumping equities across the EM basket (minus china) since September '24 as shown by this wave count. India too is part of the same EM basket and this chart shows that the most selling is done,” he wrote.
Dismissing concerns that India's tax policies were solely to blame, he explained, “India is a shop in a big mall known as the Emerging Markets. If more people visit that mall, all shops benefit. If the footfall is less, all shops lose business. Some shops can do slightly better or worse but overall they can't operate in isolation.”
The impact has been severe — on February 28, the Sensex and Nifty recorded their fifth consecutive monthly loss, marking the longest losing streak since 1996. A mix of global economic slowdown, a tariff war, and weak Q3 earnings has fueled broad-based selling, leaving Dalal Street on edge.
Amid this turmoil, market experts have urged the government to consider reducing long-term capital gains (LTCG) tax and Securities Transaction Tax (STT) to restore investor confidence. Others, however, caution against panic, arguing that the current downturn is part of a broader trend across emerging markets.
The ongoing sell-off has been driven by a combination of tightening monetary policies, slowing global growth, and inflationary pressures, causing sharp declines in major indices. While some investors see an opportunity to buy undervalued stocks, others remain cautious about near-term instability.
Market analysts suggest that despite short-term challenges, India’s long-term economic fundamentals remain intact. Targeted policy measures and a stabilization of global financial conditions could help turn the tide, but for now, volatility continues to test investor resilience.