Foreign institutional investor (FII) confidence in the Indian market is contingent on improved corporate earnings in the upcoming quarter (Q4) and the realization of the US-India trade deal, as per analysts. While the former is anticipated in the January-March quarter (Q4 FY26), uncertainty surrounds the timeline of the latter. Dr. VK Vijayakumar, Chief Investment Strategist at Geojit Investments Ltd., highlighted the lack of clarity on the US-India trade deal as a significant market uncertainty.
FPIs continued their selling trend in the week ending January 23, intensifying their selling activities. Data from NSDL revealed that total FPI selling in the equity market this month (up to January 23) amounted to Rs 33,598 crore, marking the highest monthly selling figure since August 2025. Vijayakumar noted that weak sentiments persisted due to various factors, including rupee depreciation, uncertainty surrounding the US-India trade deal, and lackluster Q3 results that do not signal an uptick in corporate earnings.
The sustained selling by FIIs resulted in a 2.5% decline in Nifty for the week ending January 23, leading to a market cap erosion of Rs 16 trillion within a week, analysts reported. The continuous rupee depreciation, reaching Rs 91.96 against the dollar on Friday, has been a key driver behind FII selling. Market participants anticipate that the delay in the US-India trade agreement could further widen India’s trade and current account deficits, impacting the rupee.
Investors are closely monitoring cues from Union Budget 2026 and guidance from the Fed regarding interest rate cut trends. Analysts suggest that elevated FII short positions, oversold momentum indicators, and pre-Budget positioning might trigger instances of short covering in the market.
