August 26, 2025

Mumbai witnessed a spicy mix of caution as overseas fund managers stepped up selling in Indian stocks during the first half of August. The main villains here? Tariff uncertainty, a weaker rupee, and disappointing corporate earnings that spooked foreign investors big time. Data from NSDL revealed a huge sell-off of ₹34,022 crore across 16 industries in early August. This follows ₹34,974 crore outflow in late July and yet another ₹10,541 crore lost in June. The Sensex and Nifty, India’s top indices, have struggled to stay positive, gaining just 0.8% this month after a 2.9% fall in July. “Muted earnings, strong pipeline in the primary markets and the tussle on the tariff front have kept foreign investors wary about India,” said Sriram Velayudhan, senior vice president at IIFL Capital. The financial services sector bore the brunt, with foreigners selling ₹13,471 crore worth of shares. Banks faced tough times as credit growth looks flat, suggests Pranay Aggarwal, CEO of Stoxkart. He also said, “The uncertainty on India-US relations has also led to overall outflows.” After big purchases from March to June, foreign investors dumped ₹5,000 crore in banks in July alone. Bhavik Joshi from INVasset PMS noted, “There has been some profit booking in financial services after the recent outperformance, reflecting expectations of near-term margin compression and a cooling credit growth cycle.” Bank margins are under pressure now, causing caution. The IT sector wasn’t spared either – foreign sellers offloaded ₹6,380 crore in the first half of August. With technology spending weak worldwide and macroeconomic worries high, IT companies’ margins are shrinking. Joshi added, “While the prospect of US rate cuts offered a temporary lift to IT stocks, the sustainability of that momentum is limited, as global clients remain conservative on discretionary tech outlays.” Still, the US Federal Reserve’s upcoming interest rate cut talks are offering some hope. Other sectors feeling the heat include oil and gas, where investors sold ₹4,091 crore. Geopolitical tension and trade uncertainties keep the nerves on edge. Joshi explained, “Recent signals from the US on India’s continued crude imports from Russia have created an overhang, with markets now watching closely for clarity toward the end of August.” Power and healthcare saw over ₹2,000 crore outflows too, with realty, FMCG, and consumer durables losing more than ₹1,000 crore. But it’s not all selling! Overseas buyers scooped up shares worth ₹13,046 crore in seven sectors in early August. Telecommunications shone brightest, attracting ₹7,446 crore after huge inflows earlier this year. Looking ahead, the US Federal Reserve’s hint at interest rate cuts may boost emerging markets, but India might not see a big rush just yet. Velayudhan warned, “Other countries are trading at attractive valuations compared to India.” A rate cut could weaken the dollar and nudge investors away from dollar assets, opening potential for Indian shares. Joshi feels hopeful: “Following the accelerated foreign sell-off through July and August, we anticipate a potential turnaround in flows if the dollar continues to soften and global liquidity improves.” He added that inflows will likely target non-traditional sectors like capital goods and select metals, where earnings and leverage are picking up. So, is the foreign investor fire cooling off or just simmering before a fresh market masala? Stay tuned, because the game is far from over!

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Tags: Foreign investors, Indian equities, Sensex, Nifty, Stock market, Foreign fund flows,