By Abdullah Shah2024 witnessed a slew of global conflicts, sticky inflation, and high interest rates, resulting in Foreign Institutional Investors (FIIs) getting a lot pickier with their investments in the Indian equity market. Investments and withdrawals were sector-specific investments and withdrawals.
The trend persists in 2025 as Trump has been known to make both friends and enemies easily, and he brings this penchant into geopolitics. Markets have reacted sharply to his tariffs against allies and his outreach to Putin.
Since January 2024, FIIs have sold total equities worth Rs 77,597 crore. FII shareholding in Indian equities were at a 12-year low of 16% in January 2025.
Speaking on the FII sell-off, Finance Minister Nirmala Sitharaman said, “FIIs go out when they are in a position to book profits. The Indian economy has an environment today where investments are yielding good results and profit-booking is happening.”
Sitharaman is dodging a bit here. Profit booking isn’t the only factor driving FIIs to sell. Concerns such as earnings downgrades, a weakening rupee, slower-than-expected GDP growth, and anemic private capital expenditure are also fueling the outflows.
This Chart of the Week dives into the patterns of FII investments across various sectors in the past several months.
FIIs trim holdings in Finance, Oil & Gas, and IT stocks
The financial sector bore the brunt of FII sell-offs in 2024 and January 2025. FIIs offloaded financial sector shares worth Rs 83,229 crore since January 2024, with January and October 2024 witnessing the highest outflows of Rs 30,013 crore and Rs 26,139 crore, respectively.
After four consecutive years of healthy double-digit growth, Indian equities faced earnings downgrades in the past two quarters.
The Indian government's estimates for GDP in FY25 confirmed the vibes – that the economy is seeing a slowdown. Real GDP growth is estimated to decelerate to 6.4% from 8.2% in FY24. This is below both the Ministry of Finance's forecast of 6.5% and the Reserve Bank of India's projection of 6.6%.
The Indian rupee also weakened to a record low of Rs 87.2 against the US dollar in January 2025, after the RBI stopped aggressively defending the rupee via dollar sales. This depreciation has increased currency risk for FIIs, potentially triggering further outflows as investors sought to limit foreign exchange losses.
Dr. V K Vijayakumar, Chief Investment Strategist at Geojit Financial Services, noted, "Despite the massive FPI selling in financials, this sector is resilient since the valuations are fair and every selling is being absorbed by Domestic Institutional Investors (DIIs) and individual investors, particularly HNIs."
The oil & gas sector also saw substantial FII exits, with total sell-offs amounting to Rs 57,912 crore by January 2025. Notably, October, November, and December 2024 alone accounted for Rs 45,616 crore of these outflows.
Fluctuating global oil prices from geopolitical tensions and supply-demand imbalances from US sanctions on Russian crude oil, have created uncertainty in the sector. FIIs further lost confidence in the sector due to domestic policy adjustments, including changes in subsidies and taxation.
The oil & gas marketing industry’s revenue and net profit declined by 3.8% YoY and 65.8% YoY during Q3FY25, further contributing to the sell-off. With the sector weakening, BPCL fell out of the Nifty 50 index in the most recent reshuffle.
The IT sector presents a mixed picture. While specific periods saw FII interest, the overall trend indicates caution. In January 2025, FIIs withdrew approximately Rs 6,471 crore from IT stocks, reversing the Rs 14,566 crore invested in November and December 2024. Signs of a potential slowdown in key markets such as the US, have investors anticipating reduced demand for IT services.
High valuations in the IT sector and earnings downgrades prompted FIIs to book profits. Aamar Deo Singh, Senior Vice President of equity, commodity, and currency at Angel One, referred to this as a "double whammy," as the dip in consumer sentiment follows higher-than-expected January inflation figures of 3% compared to 2.9% in December.
Consumer Services and Capital Goods sectors see limited FII interest
FIIs showed mixed interest in sectors like consumer services and capital goods. While these sectors saw good FII activity, the investments were modest. The sectors saw FII investment in H1CY24. However, investor interest declined towards the end of 2024 and January 2025.
Despite the Union Budget's focus on boosting discretionary spending, concerns over stretched valuations and a slowing trend in urban consumption led to profit-booking by foreign investors. A continued recovery in demand is needed for investors to return.
Healthcare and Realty sectors attract FIIs, backed by favourable government regulations
As a defensive sector, the healthcare sector attracted FII investments with inflows of Rs 23,984 since January 2024. The sector also witnessed FIIs investing Rs 20,823 crore from June to September 2024 after expectations of increased spending. India's healthcare sector continued to expand, with growing demand for hospital chains, specialized treatments, and innovative drug research. Government initiatives to improve healthcare services made the sector attractive to foreign investors.
The realty sector saw a surge in foreign institutional investments of Rs 5,375 crore, Rs 2,061 crore and Rs 4,778 crore in September, November, and December 2024. This suggests growing confidence in India's real estate market. Rapid urbanization and government initiatives aimed at infrastructure development have strengthened the realty sector's prospects.
Overall, 2024 witnessed significant FII outflows, with financials and oil & gas sectors facing the largest withdrawals. So far, 2025 has seen a similar trend. However, the healthcare and real estate sectors have attracted foreign investments – investors are lifting some boats over others