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Will the US-China trade deal dampen foreign flows to Indian markets again?FPIs infused $3 billion into Indian equities since March, but momentum is fading. FPIs turned net sellers on May 9, offloading $279 million. Nifty50 declined 1.4%, and IT stocks dropped 2.4%.By Yoosef K   May 13, 2025, 8:53:41 PM IST (Updated)2 Min ReadForeign portfolio investors (FPIs) have infused nearly $3 billion into Indian equities since March, drawn by the country’s relative stability amid global tariff tensions and optimism around a corporate earnings revival. However, this momentum now appears to be waning.

After 16 consecutive sessions of net buying, FPIs turned net sellers on Friday, May 9, offloading $279 million worth of Indian shares, followed by an additional $56 million in outflows on Tuesday.

The short-term trend in foreign inflows is also showing signs of fatigue. The five-day moving average of net FPI inflows has dropped to $155 million, slipping below the 20-day average of $250.7 million, shows data compiled from Bloomberg.

Adding to the caution, the recent rally in Indian equities—which marked the biggest one-day gain in over four years—lost steam on Tuesday. The benchmark Nifty50 declined 1.4% to 24,578.35, while the Nifty IT index dropped 2.4%, reflecting renewed pressure on technology stocks. Analysts note that IT shares may have limited upside from current levels, as their one-year forward valuations are already near the five-year average and have surpassed levels seen in April, when the U.S. announced fresh tariffs.

According to market participants, a possible reversal in foreign flows could be driven by the latest developments in the US-China trade deal. “A flow reversal to the US due to a stronger dollar and higher allocations to China in emerging markets will likely cap FII inflows to India in the near term,” BofA Securities wrote in an investor note.

Domestic institutional investor (DII) activity has also moderated. DIIs—which include mutual funds, insurers, and banks—purchased $6.1 billion worth of equities in April, a drop from the $8.6 billion peak seen in October. “We expect DII flows to remain volatile as potential market rally could trigger profit booking, while any corrections may attract sharp inflows,” BofA added.

While FPIs bought $1.3 billion worth of Indian shares in April, their enthusiasm has been sector-specific. Financial stocks were favored, while IT stocks continued to be avoided due to concerns around a US growth slowdown.

Still, India stands out among emerging markets in terms of foreign flows, with a net inflow of $2.7 billion quarter-to-date. In contrast, South Korea has seen sharp outflows of $6.7 billion since April, while Taiwan attracted $4.4 billion in inflows—largely driven by its semiconductor sector, which remains exempt from recent US tariffs.

Also read: India's retail inflation drops to 3.16% in April, lowest in over five yearsContinue ReadingFirst Published: May 13, 2025 8:25 PM ISTCheck out our in-depth Market Coverage, Business News & get real-time Stock Market Updates on CNBC-TV18. Also, Watch our channels CNBC-TV18, CNBC Awaaz and CNBC Bajar Live on-the-go!TagsUS-China dealUS-China tariff war