FIIs turn net sellers in July as trade risks, Q1 concerns mount

Foreign institutional investors (FIIs), who had been net buyers in May and June, have turned sellers in the first week of July, reflecting a cautious sentiment amid global uncertainty and stretched valuations in the Indian market.

According to Dr. V.K. Vijayakumar, Chief Investment Strategist at Geojit Financial Services, the strong FII buying trend that picked up in May has weakened. "FIIs were buyers to the tune of Rs 18,082 crore and Rs 8,466 crore in May and June, respectively. But early July FII activity indicates selling. In the first four days of July, FIIs were sellers every day, with a cumulative sell figure of Rs 5,772 crore," he said.

In the latter half of June, FIIs had shown buying interest in financials, autos, auto components, and oil & gas, while booking profits in capital goods and power. "There is a trend of profit booking in segments that have done well recently," Vijayakumar noted.

He added that the return of FII inflows would depend on two key factors: progress in India–U.S. trade talks and earnings growth in the upcoming Q1FY26 results. “If a trade deal happens between India and the U.S., that will be positive for markets and FII flows. Similarly, any signs of an earnings recovery in Q1 could provide further support,” he said. However, any setback on either front may weigh on sentiment and dampen FII interest.

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Markets pause after strong run
After rallying over 15% between March and June, Indian equities have taken a breather in July. In the first four trading sessions of the month, the Sensex and Nifty declined marginally by around 0.2%, as stretched valuations and global cues prompted investors to adopt a wait-and-watch approach.

The focus remains on the outcome of trade discussions, with U.S. President Donald Trump’s July 9 deadline for reciprocal tariffs approaching fast. Investors are also awaiting cues from the earnings season, which begins next week.

On Friday, benchmark indices edged higher, aided by a rebound in IT and financial stocks. The Nifty 50 rose 0.22% to close at 25,461, while the BSE Sensex added 0.23% to end at 83,432.89. Despite the day’s gains, both indices posted weekly losses.

Among sectors, seven of the 13 major indices ended lower for the week. Financials fell 1.75%, pulling back from record highs. However, small-cap and mid-cap indices posted weekly gains of 0.3% and 0.5%, respectively, supported by steady domestic inflows, a stable monsoon outlook, and expectations of stronger Q1 earnings on a low base.

Analysts said valuation concerns and broad-based profit-taking kept investors on the sidelines through much of the week. With global developments and corporate earnings set to unfold in the coming days, the near-term trajectory for FII flows and market direction will likely hinge on incoming signals.

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(Disclaimer: Recommendations, suggestions, views, and opinions given by the experts are their own. These do not represent the views of The Economic Times)