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Heavy selling by foreign investors likely due to India delivering good returns: FM Sitharaman
- On US President Donald Trump's plans to introduce reciprocal tariffs, India's finance minister said the Indian government was looking to build an investor-friendly country and would continue with duty cuts and rationalization announced in the Union Budget.
Mumbai: The heavy selling by foreign investors could be a result of their investments in India delivering good returns and allowing for profit-booking, Union finance minister Nirmala Sitharaman said at a post-Budget media briefing on Monday.
The finance minister also said the government would continue to rationalise duties as part of its efforts to build an investor-friendly country—an important assertion in the backdrop of US President Donald Trump’s proposed tariffs.
India’s benchmark Nifty 50 and Sensex indices snapped an eight-day losing streak on Monday as sustained selling pressure had created opportunities for investors to capitalise on the market correction.
This year, up to 14 February, FPIs have been net sellers of $12 billion in Indian equities, as per data from National Securities Depository Ltd (NSDL). In 2024, FPIs were net buyers of $124 million in equities in the domestic market.
“The Indian economy today has an environment in which investments are also yielding good returns and profit-booking is also happening,” Sitharaman said, adding that foreign investors also exit markets “when they are able to or are in a position to book profits”.
Mint reported on 15 February that the noise around so-called heavy selling by foreign investors in India masked a key distinction: there are no signs of a large-scale exodus. Yet, foreign investors are willing to exit at lower levels, amplifying a bearish sentiment.
While FPIs net sold shares worth $21 billion over four months through the end of January, this accounts for just 14.2% of the $148 billion decline in their assets from a cumulative $930 billion as at the end of September. The rest is attributable to unrealised losses to their portfolios.
On Trump’s tariffs
Revenue secretary Tuhin Kanta Pandey said it was not true that FPIs were moving from one emerging market to another amid ongoing global uncertainties, including Trump’s proposed tariff increases that could affect Indian trade.
“Whenever there is global uncertainty, they would really go back where they actually come from, basically back to the US,” he said, adding that India’s equity markets have been resilient.
The recent correction in India’s stock markets is expected to continue due to relentless selling by FIIs on the back of global tariff tensions and rising US bond yields, Mint reported on 17 February.
Pandey said India remains the fastest-growing large economy and will continue to grow despite the global headwinds. This despite a slowdown in India’s economic growth from 8.2% in 2023-24 to an estimated 6.4% in the ongoing fiscal year chiefly due to lower capital expenditure by the Union government and declining household consumption.
India’s equity markets have been roiled not just by Trump’s tariffs but also by weak third-quarter earnings of Indian companies.
The benchmark Nifty 50 index has lost 12.4% since scaling a lifetime high of 26,216.05 points on 26 September. The MSCI India index’s gross return of 5.88% on a one-year basis as on 31 January vastly underperformed the broader MSCI Emerging Markets index’s gross return of 15.35%.
On Trump’s plan to introduce reciprocal tariffs, Sitharaman said India’s Budget for 2025-26 showed that the Union government planned to rationalise its basic customs duty and that India periodically reviewed its safeguard duties or anti-dumping duties.
Trump’s plans for reciprocal tariffs would involve levying the same level of tariffs on goods as charged by an exporting country if the latter's duties on similar products are high.
India and the US recently agreed to boost bilateral trade to $500 billion by 2030 and work towards a trade deal that would reduce duties and improve market access.
“We are building to be an investor-friendly country and as a result the duty cuts and the rationalization process that has been announced is a continuous process and we shall keep doing that,” Sitharaman said.
Higher insurance cover on deposits
The Union government is also looking to increase the insurance cover on deposits, which is currently at ₹5 lakh and was last raised from ₹1 lakh in 2021, according to M. Nagaraju, secretary, department of financial services. The proposal “is under active consideration”, he said.
All commercial banks, including the branches of foreign banks in India, small finance banks, payment banks, regional rural banks, and local area banks are covered under the deposit insurance scheme.
This comes as the Reserve Bank of India last week superseded the board of Mumbai-based New India Cooperative Bank Ltd for a year owing to “certain material concerns emanating from poor governance standards”.
“RBI is seized of the matter. They have taken actions and we are not going to comment on that,” said Nagaraju.
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Business NewsEconomyHeavy selling by foreign investors likely due to India delivering good returns: FM Sitharaman
First Published:17 Feb 2025, 07:08 PM IST
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