The sell-off by overseas investors has extended into a second straight month in August, as concerns over US President Donald Trump’s 50% tariffs on Indian imports, along with tepid June-quarter earnings by India Inc. and rich valuations, have reportedly been driving them to other emerging markets.
Investor sentiment towards India soured after Trump imposed higher duties on Indian goods while simultaneously striking trade deals with other Asian economies, including Japan, and extending the tariff suspension on China for another 90 days. These moves have led foreign investors to redirect their focus to those regions.
According to a Bank of America Corp. survey, 30% of global fund managers said they are underweight on India, followed by 20% for Thailand and 10% for Malaysia. Japan emerged as the top pick, with China in second place.
This marks a sharp reversal from May’s survey, which had shown India displacing Japan as the most favoured market due to its perceived safe-haven status during Trump’s initial tariff rollout, Bloomberg reported, citing the survey.
August outflows top ₹22,000 crore
During Wednesday’s trading session, FPIs sold another ₹3,644 crore worth of Indian stocks through exchanges, taking their total outflow in August to ₹22,264 crore so far. This came after ₹47,666 crore of selling in July, which took their total sales figure for 2025 to ₹1.92 lakh crore so far.
Notably, FPIs have been heavily selling domestic tech stocks, as in July alone, they withdrew ₹20,000 crore worth of holdings. Lacklustre earnings and a weak demand outlook spooked their sentiment, and in the June quarter, nine of the ten constituents of the Nifty IT index saw a drop in their overseas investor holdings.
In addition to weak domestic factors, the strengthening US dollar and elevated US bond yields are adding to the pressure on the ₹5.2 trillion equity market, causing India to underperform compared to its Asian peers over the last one and a half months.
US stocks have also staged a strong comeback from their April low amid better tech earnings, led by a sharp surge in the AI demand outlook.
Despite starting 2025 on a negative note and remaining net sellers for the first three months, FPI sentiment reversed in April and stayed positive in the following two months, with FPIs buying a cumulative ₹31,000 crore worth of local stocks.
Although FPIs have been net sellers in eight out of nine trading sessions in August, the impact on the Indian stock market has been limited, thanks to robust buying from domestic institutional investors (DIIs), largely driven by mutual funds, which have continued to absorb the heavy FPI selling.
According to exchange data, DIIs have purchased ₹51,899 crore worth of Indian equities in August so far, more than offsetting the FPI outflows. DII inflows have crossed ₹4.7 lakh crore in 2025 so far, and if the momentum extends into the remaining four months, the inflows may surpass the ₹5.2 lakh crore recorded in the previous calendar year.
Focus shifts to Trump-Putin meeting
According to the analysts, the reversal in FPI sentiment will depend on the outcome of the upcoming meeting between US President Donald Trump and Russian President Vladimir Putin in Alaska tomorrow, where discussions will center on the Ukraine conflict, and the outcome could influence tariff policy and risk sentiment.
They say that if the talks lead to an end to the Russia–Ukraine war, it may also result in the withdrawal of US sanctions on Russia and, consequently, a reconsideration of the 25% penal tariff imposed on India for buying oil from Russia.
Meanwhile, Trump warned late Wednesday that Russia would face “very severe consequences” if it refused to end the war in Ukraine, while Ukrainian President Volodymyr Zelenskiy reiterated that he would not cede the eastern Donbas region to Russia.
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