There is a distinct slowdown in the FII buying trend after the momentum seen in the second half of April and May. While FIIs were net buyers of Rs 18,082 crore in May and Rs 8,466 crore in June, the early July FII activity indicates a definitive selling bias.

In July so far, FIIs have been sellers every day and have net sold Rs 5,772 crores. Most importantly, if we see the trend in the calendar year, FII outflows in 2025 have reached $8.2 billion so far compared to outflows of $0.8 billion last year, in 2024. The big question now is should you fear the outflow or prepare for the inflow?

What’s triggering this slowdown in buying momentum?

According to international brokerage house Jefferies, “The positioning of FPIs towards Indian equities is close to neutral, and our extensive meetings across geographies with 100+ FPIs over the last 4 weeks suggest that small inflows will continue into India.”

The report by Jefferies highlighted that “FPI flows turned positive, but inflows were not large. Net FPI flows, which were negative $15.6 billion in FY25, have turned positive with $4.6 billion of inflows recorded so far in FY26. A weak US dollar could further support the sustainability of FPI flows into EMs and consequently Indian equities, although the same is not visible as of now.”

Going ahead, Jefferies believes “market returns may be capped in the near term, as the supply is likely to stay high. A strong revival in FPI flows will be a key factor to watch, especially as domestic flows are unlikely to surge given that the trailing 12-month equity returns will keep falling until September.”

The US-India trade deal is definitely an important catalyst that can help determine the overall FII direction in India and across emerging markets. VK Vijayakumar, Chief Investment Strategist, Geojit Investments, pointed out that “Resumption of FII buying will hinge on two things: the trade deal between India and the US, and the second factor is the direction of Q1FY26 results. If the results indicate earnings recovery, that will be positive. Disappointment on these counts may impact the market and, thereby, FII flows.”

Shrikant Chouhan, Head Equity Research, Kotak Securities, also corroborated that view, “FPI flows are expected to remain volatile.The flows in July till date were mixed for all key emerging markets. India saw inflows along with Malaysia, the Philippines, South Korea, Taiwan, and Vietnam. Brazil, Indonesia, and Thailand witnessed outflows.”

One cannot completely disregard the dollar’s movement either during the last two months. The greenback has extended its longest slump in five decades. The Dollar Index is down to its lowest levels in 2025, and these levels of 96 were last seen in 2022. For 2025, the Dollar Index has already declined 10%, and in just the last 1 month, it has gone down by over 2%.

Market veteran Ajay Bagga added that “the US dollar weakening, expectations of Fed rate cuts starting in September, and a pivot away from US assets to EMs will all be positive for Indian markets. FII buying has focused on financials, energy, and IT, which should continue. As the Trump tariff wars abate, the EM attractiveness should increase. India remains in the top 3 favoured EM markets, and we expect more FII flows to head towards India in H2 of CY2025.”

Broadly, the US-India trade deal, the Fed’s rate stance, and the dollar’s direction through 2025 are going to be the primary factors affecting FII flows to India. While, India may be a beneficiary of the EM focus, the exact extent of flows would also need to factor in key macro aspects like the earnings and growth outlook.