FIIs Withdraw ₹31,889 Crore from Indian Equities in August: Financials and IT Hit the Hardest
Foreign Institutional Investors (FIIs) have once again turned cautious on Indian markets. In the first half of August 2025, FIIs pulled out a staggering ₹31,889 crore from eight major sectors of Indian equities. The bulk of the selling pressure was witnessed in financials and information technology (IT) stocks. Analysts attribute this exodus to U.S. tariff uncertainties, muted June quarter earnings, and global risk aversion.
This large-scale withdrawal comes at a time when domestic retail investors and domestic institutional investors (DIIs) are attempting to provide stability to the markets. However, the extent of FII outflows has created short-term volatility, especially in Nifty50 heavyweights like banks and IT majors.
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Why FIIs Are Selling: Key Factors Driving the Outflow
1. U.S. Tariff Concerns and Global Trade Tensions
The U.S. administration’s recent tariff moves have increased volatility across emerging markets. With trade uncertainty rising, global investors are reducing exposure to riskier assets and reallocating capital to safer avenues such as U.S. Treasuries and the dollar index. This has put emerging markets like India under selling pressure.
2. Disappointing June Quarter Earnings
The June quarter results across Indian corporates were largely below expectations. IT companies like Infosys, TCS, and Wipro reported muted revenue growth, while banks faced concerns around asset quality and higher provisioning. This earnings disappointment provided FIIs with a reason to trim their exposure.
3. Rupee Volatility
The Indian rupee has shown signs of weakness against the U.S. dollar in recent weeks. For FIIs, a falling rupee erodes dollar returns, making Indian equities less attractive compared to other Asian peers.
4. Global Risk-Off Sentiment
Beyond tariffs, factors like sluggish Chinese growth, oil price volatility, and geopolitical tensions have contributed to a global risk-off sentiment. FIIs, in response, have adopted a cautious approach toward equity markets worldwide.
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Sector-Wise Breakdown of FII Outflows
FIIs offloaded ₹31,889 crore across eight key sectors. Here’s a closer look at which industries bore the brunt:
1. Financial Services (Banks, NBFCs, Insurance)
Outflow: ~₹12,500 crore
FIIs sold heavily in private sector banks and NBFCs. Concerns around rising credit costs, slower loan growth, and margin compression impacted sentiment. Heavyweights like HDFC Bank, ICICI Bank, and Axis Bank saw increased selling pressure.
2. Information Technology (IT Services, Tech Consulting)
Outflow: ~₹8,000 crore
Global uncertainty hit IT stocks, as revenue visibility in North America remains clouded. Companies like TCS, Infosys, and Wipro witnessed large FII selling. Weak guidance and declining discretionary tech spends added to the cautious mood.
3. Energy and Oil & Gas
Outflow: ~₹3,200 crore
FIIs booked profits in upstream and downstream energy players, partly due to fluctuating crude oil prices and regulatory overhang on pricing mechanisms.
4. Metals and Mining
Outflow: ~₹2,800 crore
Global commodity weakness dragged down stocks in this sector. The slowdown in China’s industrial demand was a significant factor.
5. FMCG (Fast-Moving Consumer Goods)
Outflow: ~₹1,900 crore
Despite being traditionally defensive, FMCG faced selling as valuation concerns mounted. Sluggish rural demand after weak monsoons hurt earnings visibility.
6. Capital Goods & Industrials
Outflow: ~₹1,500 crore
While the government continues to push for infrastructure growth, FIIs trimmed exposure due to concerns about execution delays and high debt levels in some companies.
7. Healthcare & Pharma
Outflow: ~₹1,200 crore
Profit-taking in pharma majors occurred despite export growth. Regulatory risks in the U.S. market weighed on valuations.
8. Telecom & Media
Outflow: ~₹789 crore
Competitive pressures, high debt, and spectrum-related uncertainties made this sector less attractive for foreign investors.
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Impact on Indian Stock Markets
The sharp outflow of FII funds has created short-term volatility across indices.
Nifty50 and Sensex Movement: Both indices faced selling pressure in financials and IT, leading to 2–3% declines in August’s first half.
Bank Nifty: Given the concentrated selling in banking stocks, the Bank Nifty corrected sharply by 4%.
IT Index: IT index fell by over 5%, marking one of its worst fortnights in recent months.
Despite this, domestic investors (DIIs, mutual funds, and retail participants) have absorbed some of the selling. In fact, DIIs invested ₹28,400 crore during the same period, showcasing the rising strength of local capital in stabilizing Indian equities.
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Experts’ Take: Will FII Selling Continue?
Market strategists believe the next few weeks will remain volatile. Here’s a summary of analyst opinions:
Short-Term Bearish, Medium-Term Constructive
“The near-term trend remains weak as FIIs are still nervous about U.S. tariffs and global growth. However, India’s structural story remains intact. Once global uncertainties stabilize, FIIs are likely to return,” said a leading brokerage strategist.
Domestic Flows to Provide Support
Experts point out that domestic SIP (Systematic Investment Plan) inflows of over ₹20,000 crore per month are acting as a cushion against FII outflows.
Sectors to Watch
Analysts suggest keeping an eye on infrastructure, defense manufacturing, and renewable energy sectors, which may attract long-term FII interest once volatility subsides.
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Historical Context: FII Flows and Indian Market Cycles
This is not the first time FIIs have turned net sellers:
In March 2020, during the COVID-19 crash, FIIs withdrew nearly ₹62,000 crore in a single month.
In 2022, FIIs sold over ₹1.4 lakh crore due to Fed rate hikes and global inflation worries.
However, each time FIIs returned once macroeconomic clarity improved, often at higher valuations.
This historical trend provides optimism that while short-term pain is real, long-term investors in India remain confident.
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What Investors Should Do Now
For retail investors and long-term participants, the key is not to panic during FII-driven corrections. Experts recommend:
1. Stay Focused on Fundamentals:
Focus on companies with strong balance sheets, consistent earnings, and sectoral tailwinds.
2. Use Dips to Accumulate:
Market corrections caused by FII outflows often create attractive entry points in quality stocks.
3. Diversify Across Sectors:
Avoid overexposure to sectors facing heavy FII selling (like IT and financials) in the near term. Consider defensives like healthcare, utilities, and renewables.
4. Keep an Eye on Global Cues:
U.S. Fed policy, dollar index trends, and tariff announcements will continue to guide FII activity.
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Conclusion
The withdrawal of ₹31,889 crore by FIIs in August 2025 highlights the fragile nature of global investor sentiment amid tariff concerns, weak earnings, and rupee volatility. While financials and IT stocks have been hardest hit, the broader market impact has been cushioned by robust domestic flows.
India’s long-term growth narrative remains strong, backed by structural reforms, government spending, and rising domestic participation. For investors, the key lies in patience, diversification, and focusing on fundamentals rather than short-term FII movements.
In the past, FIIs have always returned once uncertainties cleared — and there’s little reason to believe this cycle will be any different.
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