• FIIs are expected to reduce selling in India with the incoming Trump administration.
• FPIs turned net sellers in October, withdrawing $11.5 billion due to rising US bond yields.
• The new framework by RBI and SEBI for reclassifying foreign FPIs as FDIs is expected to positively impact foreign inflows into India.
• Despite FII withdrawals, robust domestic investment and strong economic fundamentals may help mitigate prolonged downturns in Indian markets.

Foreign Institutional Investors (FIIs) are anticipated to decrease their selling in India as the year draws to a close. Market experts predict that fresh allocations or significant investments are likely to occur once there is greater clarity regarding the policies of the incoming Trump administration in the US.

This comes after a period of heavy selling by FIIs in the Indian stock market, driven by factors such as weak earnings, high valuations compared to other markets, and global economic influences such as rising US bond yields.

Vipul Bhowar, Senior Director of Listed Investments at Waterfield Advisors, noted that some of the selling by FIIs in the secondary market is being counterbalanced by buying in the primary market, through large initial public offerings like those from Swiggy and Hyundai.

He added that fresh allocations or significant investments are likely to occur once there is greater clarity regarding the Trump administration's policies.

FPIs Turn Net Sellers Amid Rising US Bond Yields

Foreign Portfolio Investors (FPIs) have been reducing their weightage in mature sectors and allocating capital to high-growth businesses. For example, in the financial sectors, FPIs have been increasing allocation in Capital Market themes like Asset management, exchanges, and healthcare. However, FPIs turned net sellers in October, withdrawing $11.5 billion (in equity, debt and hybrid categories) compared to an inflow of $11.2 billion in September.

The equity market saw a record-high net outflow of $11.2 billion in response to the rise in Chinese equities following the announcement of aggressive fiscal stimulus measures, according to the latest Crisil report.

Despite the FII outflows, domestic financial conditions in India are in the comfort zone. The new framework established by the RBI and the SEBI for reclassifying foreign FPIs as FDIs is expected to positively impact foreign inflows into India, said experts. This framework provides greater flexibility for foreign investors and reduces barriers to entry.

Impact of Trump's Win on Indian Markets and FII Outflows

The impact of Donald Trump's win in the U.S. presidential elections on Indian markets can be assessed through multiple factors: economic, geopolitical, and market sentiment. From an Indian perspective, key areas where Trump's policies could have a ripple effect include Trade Policies, FII Flows and Currency Dynamics, and Sector-Specific Impacts.

The recent substantial outflow of Foreign Institutional Investor (FII) funds from Indian equities has raised concerns about market stability. In October 2024 alone, FIIs withdrew approximately Rs 88,818 crore, marking a significant shift in investment patterns. This trend has contributed to a nearly 10% decline in benchmark indices since their peak on September 27, 2024.

Despite these challenges, domestic institutional investors have shown resilience, with equity mutual fund inflows reaching a record Rs 418.87 billion in October. This domestic support has provided some stability amid FII outflows.