Foreign portfolio investors pulled out a whopping Rs 16,422 crore from Indian equities last week, shaken by worries over high valuations and fresh US policy moves. But experts believe the mood among these big players is about to shift back in India’s favor.
The trigger? New US rules slapping a $100,000 fee on H-1B visa applications and hefty tariffs on branded drugs. These changes have investors fretting over potential hits to earnings in India’s booming IT sector and pharmaceutical industry, both heavyweights in the stock market.
That selling spree led to the sharpest weekly drop for benchmark indices like the Sensex and Nifty in seven months. Overall, Indian stocks have trailed other emerging markets by nearly 26% this year when measured in dollars, thanks to ongoing FPI outflows, global trade tensions, and pressures on key sectors.
Dr. VK Vijayakumar, chief investment strategist at Geojit Financial Services, points out that FPIs have yanked out $21 billion from India over the past year—the biggest withdrawal among emerging markets. “This FPI outflow has played a big role in the Indian rupee’s 3.5% slide against the dollar,” he explains. High valuations compared to other markets and sluggish earnings growth are the main culprits behind the pullback.
Looking at the pattern, FPIs dumped stocks in the first quarter of 2025, flipped to buying in the next three months, and started selling again from July through early September. The rupee’s weakness stands out, especially as currencies in other emerging markets have actually strengthened, adding extra strain.
On a brighter note, Vijayakumar highlights sparks of recovery in the automotive and white goods sectors. Record bookings for cars, lower GST rates, and easier access to cheap credit are driving things forward. “This should spark stronger earnings growth, and the market—along with FPIs—will start pricing it in soon,” he says. Plus, more rupee depreciation looks unlikely right now.
Vijayakumar wraps up optimistically: “We’re probably at the bottom of this FPI pullout phase.” He expects India’s earnings growth to accelerate starting from the third quarter of fiscal 2026, building real steam by 2027. For investors eyeing Indian equities, that could signal smoother sailing ahead amid the emerging markets rally.
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