Where do you think the Nifty is heading?

After two strong months of foreign inflows into Indian equities, June 2025 has begun on a contrasting note. Foreign Portfolio Investors (FPIs) have withdrawn a net ₹8,749 crore from Indian equity markets in the first week alone, reversing the momentum that saw ₹19,860 crore invested in May and ₹4,223 crore in April. This shift has raised eyebrows in the investment community, as global and domestic macro factors begin to realign in unpredictable ways. The depth of confusion for investing has intensified now that we have a massive rate cut and an early start to the monsoon. Both these are strong points for the equity market to reach new highs. But will that happen keeping the global perspective and volatile mind of FII's?

Is it time to act or wait? Should one invest or hold cash? Well, to clear the confusion  of the market behaviour from May to June and going forward, we analysed the same in 3 segments

Why the sudden reversal?

1. US–China trade chill 3.0
   The Biden administration’s May‑end export‑control salvo on advanced lithography equipment, followed by China’s June 2 counter‑move restricting rare‑earth magnets, revived fears of a multi‑round tariff war. EM money managers quickly pared risk.
2. A spike in the global risk‑free rate
   • 10‑yr U.S. Treasury pushed above 4.7 % (highest since early November) after a blow‑out May non‑farm payrolls print and hawkish Fedspeak.
   • An uptick of ~25 bp in a week raises the hedged‑return hurdle for EM equities and mechanically drags forward valuations.
3. Profit‑booking after the May gush
   MSCI India’s 9 % gain and INR’s 1.4 % rally last month offered tactical investors a neat exit window.
4. Sector rotation under the hood
   End‑May depository breakup shows FPIs adding to telecom, capital‑goods and consumption services while reducing weights in IT and financials—mirroring a tilt toward domestic‑demand themes and away from dollar‑sensitive exporters.

The ₹8,749‑crore June outflow is best viewed as a pause rather than the start of a structural exodus. It reflects a classic “risk‑off” knee‑jerk to higher U.S. yields and another bout of Washington-Beijing brinkmanship. Unless those two drivers worsen materially, India’s still‑improving macro mix, weight‑of‑money from domestic savers, and index‑inclusion technicals argue for only shallow corrections—and an opportunity to accumulate quality domestic‑demand names at better prices.

The above ride of the market is backed by

·        Indices held up – The Nifty‑50 slipped only 0.6 % during the withdrawal window, cushioned by record domestic SIP inflows (~₹19,500 cr/month) and EPFO buying.

·        Rupee stability – USD/INR traded a tight 83.25–83.60 range as the RBI sold spot dollars and absorbed flows via forwards.

·        Volatility uptick – India VIX bounced from 12 to 15, still well below the long-term mean of ~18.

Events that will guide the market in the coming months

 

Investors should view the current outflow episode as a tactical retreat rather than a strategic shift. For long-term investors, continuing SIPs remains a sound approach, as domestic flows have consistently offset FPI-driven volatility since 2020. Further, the final leg of India's inclusion in JPMorgan’s GBI-EM bond index at the end of June is likely to bring in ~$2.5 billion in passive inflows. This should help support the rupee and provide room for the RBI to eventually ease rates, creating a favourable environment for equities once again.

Conclusion

The ₹8,749-crore FPI withdrawal in early June should not be seen as an alarm bell, but rather as a signal of global capital recalibrating to short-term risks. The structural investment case for India remains intact, supported by resilient domestic consumption, healthy public investment, and favourable demographic trends. As long as global uncertainties don’t spiral, the correction presents an opportunity—both for strategic allocation and selective accumulation in high-conviction domestic-demand themes.