FPIs Exit Indian Markets Amid Global Jitters and Tariff Turmoil

Foreign portfolio investors (FPIs) have reverted to net selling after a brief buying spree in late March. Between April 1 and 11, they sold equities totaling 31,988 crore INR, extending a broader trend of selling that has persisted since January. The latest wave of exits seems to have been triggered by U.S. President Donald Trump's trade tariffs, and it underscores the fragile sentiment that is apparently prevailing in global equity markets. The Indian currency mirrored this mood, posting its steepest weekly fall since February.

This latest spate of selling adds to an already quite disruptive financial year. Foreign portfolio investors pulled out INR 1.27 lakh crore in FY25, the second-largest single-year exodus, prompted by worries over international policies and not-so-hot Indian corporate profits.

Weaker Rupee and Lower Returns Amplify the Pain

Returns from Indian equities have been doubly dented for foreign investors: first, by falling share prices; second, by the depreciating rupee. Even with a late-week bounce in domestic indices that saw the Sensex jump 1.77% on Friday, the overall trend for Indian equities continues to be cautious.

Technical signs persistently show that trouble could be brewing. The first was the sudden sharp rise in the India VIX, up 46% just this week alone, which seems to have caught many by surprise. A rising VIX signals that options traders are increasingly nervous and that, well, a market drop might be in the cards. And a falling Nifty, which we do have right now, also adds fuel to this fire, or is it smoke? Anyway, it doesn't look good either way.

Tariff Drama and Global Trade Risks

The mounting intensity of global events has only amplified investor caution. As the U.S. and China trade blows over tariffs, the increased inversion in the yield curve and falling stock prices have many on Wall Street bathing in the shivers and bracing for increased dent in the value of their portfolios. But how bad could it really get?

Barring a full-blown crisis using the yield curve inversion as a template, we could be looking at a good two years ahead with pretty much no economic growth. According to Master Trust's Director Puneet Singhania, a bullish marubozu candle indicates some buying at lower levels. However, he emphasizes that the trend is still "sell-on-rise" until we see volatility ease and technical strength return.

A Potential Comeback for FPIs?

Even as the ongoing sell-off takes its toll, some analysts see the reversal potential. VK Vijayakumar at Geojit Investments sees a potential steady state return for global investors once the present turmoil subsides. He sees the March 2026 quarter coming in with 6% GDP growth for India as the base case and a near-term potential earnings (EPS) growth return for the Nifty 50 index companies.

At present, FPIs are cautious. However, if global uncertainty dissipates and India's domestic fundamentals remain robust, these financial investors may revert to a bullish stance on India's long-term growth narrative.