- FIIs sold ₹1.37 trn in February while the Nifty rose 0.6%.
- Domestic institutions (DIIs) bought over ₹9.7 trn, cushioning volatility.
- The US‑India trade pact sparked short‑term optimism, but global rate anxiety is throttling foreign inflows.
- IT stocks plunged 8.2% after the Anthropic AI shock – a key driver of the FII sell‑off.
- Historical patterns suggest a pause now could set up a stronger, patient‑capital rally later.
You’re watching FIIs dump Indian equities while the Nifty climbs – a paradox you can profit from.
Why FIIs’ February Sell‑Off Defies the Nifty Rally
As of 13 February, foreign institutional investors (FIIs) net‑sold equity worth ₹1,374 crore in the cash market. That contrasts sharply with the Nifty 50’s 0.6% gain for the month. The disparity matters because net‑buyer/seller data is a leading indicator of capital sentiment. When FIIs—who control a sizable share of market liquidity—sell, it often precedes broader corrections, especially in export‑sensitive or high‑growth segments.
The spike on 13 February (₹7,395 crore) coincided with a 336‑point Nifty dip and an 8.2% collapse in the IT index, driven by the “Anthropic shock” – a sudden market reaction to AI‑related earnings volatility. Analysts argue that FIIs targeted Indian IT stocks, fearing a spill‑over from the US AI slowdown.
How the US‑India Trade Pact Shapes Capital Flows
The recent US‑India trade agreement lifted sentiment, prompting FIIs to be net buyers on seven of eleven trading days. Trade deals typically lower tariff uncertainty, improve export pipelines for sectors like pharmaceuticals, auto components, and renewable energy, and can trigger a short‑term “risk‑on” rally.
However, the benefit is conditional. If the agreement’s implementation stalls or global monetary policy tightens, the initial optimism evaporates, leaving FIIs vulnerable to risk‑off triggers. In practice, we see the pattern: a burst of buying followed by a swift exit when macro‑risk re‑emerges.
What the IT Shock Reveals About Emerging‑Market Sentiment
India’s IT giants—Tata Consultancy Services, Infosys, Wipro—are heavily weighted in the Nifty IT index. The 8.2% slump wiped out roughly ₹25 bn of market cap in a week. For FIIs, the sector is a double‑edged sword: high earnings multiples attract foreign cash, but AI‑related earnings volatility can trigger rapid outflows.
Competitors in the domestic space, such as the newly‑listed digital services firms, are less exposed to US AI cycles, making them relatively insulated. This creates a tactical tilt: consider reallocating to Indian consumer staples, pharma, and infrastructure names that are less correlated with US tech sentiment.
Historical Parallel: Jan‑Feb 2022 FII Exit and Its Aftermath
In early 2022, FIIs sold over ₹30 trn across two months amid US inflation scares. The Nifty fell 4%, but domestic institutions stepped in, buying ₹45 trn and stabilising the market. By Q3 2022, the same FIIs returned, spurred by a softer US CPI reading, propelling the Nifty to a 12% YoY gain.
The lesson is clear: FII exits often create buying opportunities for patient capital, especially when domestic liquidity remains robust.
Technical Lens: Reading Net Buyer/Seller Data and STT Impact
Net buyer/seller figures are calculated from cash‑market settlement data, excluding derivatives. A net sell of >₹1 trn in a month signals that foreign investors are either rotating out of equities or covering short positions.
Additionally, the recent Securities Transaction Tax (STT) hike dampens speculative FII churn in futures‑and‑options (F&O). Higher STT raises the cost of rapid turnover, encouraging longer‑horizon positioning—beneficial for domestic investors seeking stability.
Investor Playbook: Bull vs. Bear Cases
Bull Case
- US inflation eases → risk‑on environment re‑opens.
- Rupee stabilises around 82‑83 per USD, lowering hedging costs.
- Domestic institutional buying sustains a floor; Nifty can test 19,500‑20,000.
- IT sector recovery post‑AI shock adds ~3‑4% upside to large‑cap exposure.
Bear Case
- Persistent US rate hikes keep global capital locked in safer assets.
- Crude oil volatility raises input‑cost pressures for Indian exporters.
- Further FII net selling pushes the Nifty below 18,500, triggering stop‑loss cascades.
- Continued IT earnings compression erodes large‑cap valuations.
For most investors, the prudent approach is to stay weighted in high‑quality domestic stocks, trim exposure to volatile IT names, and keep a portion of the portfolio in cash or short‑duration debt to ride the next wave of foreign inflows.