In its latest strategy note, JM Financial noted that foreign institutional investor (FII) ownership as a percentage of total Indian equities slipped further to 16 per cent from 16.1 per cent in December and a high of 20.2 per cent in January 2015. The institutional class offloaded Rs 72,300 crore or $8.4 billion worth of stock, resuming its selling streak after a break in December 2024. Unlike November 2024 and December 24, both of which were a tale of two halves, January witnessed FII selling on 22 out of 23 trading days in the month. February too has seen the trend continuing.
JM Financial noted that sectors that saw the highest outflows included BFSI and IT of $2.8 billion and $747 million respectively, both of which had witnessed inflows in December 2024. For oil & gas sector, January's $182 million outflows marked the fifth consecutive month of selling. For automobile sector, it was the sixth straight month of FII selloff at $672 million.
Chemicals, media, and telecom saw negligible inflows of $41 million, $20 million and $16 million, respectively.
"From net buyers in Dec’24, FII turned net sellers in Capital Goods, BFSI, Pharma, IT, and Realty in January 25," JM Financial said.
Since October 2024, when FII started extensively selling stock, they have sold a total of Rs 1.7 lakh crore or $20 billion worth of domestic stocks. In January 2025, they remained net sellers in virtually all sectors barring chemicals, media and telecom.
The selloff in the domestic equities is seen amid all-time low rupee levels. On Friday, despite the RBI reducing the policy rate by 25 basis points, the first cut in five years, the market declined on worries a further rupee depreciation may trigger foreign outlows.
With rupee under pressure, there is limited scope for aggressive rate cuts, said Arsh Mogre Economist, Institutional Research at PL Capital.
"Rupee has depreciated to Rs 87 per dollar, down from Rs 84.7 per dollar in December 2024, driven by stronger dollar, rising US 10-year yields (4.51 per cent), and $7.5 billion FPI outflows since November 2024. The narrowing India-US rate differential is increasing capital outflow risks, forcing RBI to calibrate its easing cycle cautiously to avoid excessive rupee weakness," Mogre said.
Any disorderly rupee depreciation would raise imported inflation risks and require forex reserve depletion to stabilise markets, he said.