FII Selling Highest in January 2025 in Last 11-Year; Know Why?

Foreign Institutional Investors (FIIs) have been net sellers in India throughout January 2025, barring the trading session on January 2. This marks a continuation of the significant outflows witnessed in 2024. The selling spree has intensified to such an extent that January 2025 recorded the highest FII outflows for the month in over a decade, with net sales amounting to ₹43,258 crore.

Historical Perspective: FIIs’ January Activity Over the Years

The data below sheds light on the FII activity for the month of January over the past 11 years:

The table highlights how 2025 surpassed previous records, with January 2023 and January 2022 also witnessing significant outflows of over ₹41,000 crore each. On the contrary, positive inflows were observed in January 2021, 2018, and 2015, indicating fluctuating trends over the years.

Key Drivers of FII Selling

1. Strengthening Dollar and Rising US Bond Yields

The dollar index, a measure of the US dollar’s strength against a basket of currencies, surged to a nearly 2-year high in January. This, coupled with the US 10-year bond yield nearing the 5% mark, diverted capital flows from emerging markets like India to safer, higher-yielding US assets.

2. Valuation Concerns in Indian Markets

India’s benchmark indices have rallied significantly since the COVID-19 lows, resulting in elevated valuations compared to other emerging markets. Slowing earnings growth has further added to scepticism, making Indian equities less appealing to FIIs.

3. Attractive Alternatives in Global Markets

With the US markets offering attractive valuations, FIIs have been reallocating funds to geographies perceived as offering better risk-adjusted returns. The preference for developed markets over emerging ones has also played a role in the ongoing outflows.

A Decade of Shifts: Changing FII Sentiment

The record-breaking outflows in January 2025 reflect a growing trend of risk aversion or profit booking among FIIs. While global factors such as a firming dollar and rising bond yields are significant contributors, domestic issues like stretched valuations and slowing growth prospects cannot be ignored. 

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