Foreign selling in Indian stocks continues unabated in first half of March

Foreign selling of Indian stocks continued in the first half of March, with information technology and consumer goods accounting for a significant share, amid concerns over the health of the U.S. and Indian economies.

Foreign portfolio investors (FPIs) net sold Indian stocks worth $3.5 billion during the period. IT stocks accounted for 69.34 billion rupees ($803 million) of the selling, while consumer stocks worth $591 million were offloaded, exchange data showed on Thursday.

FPIs have sold Indian shares worth $28 billion between October and March, which has triggered a 13% fall in Nifty 50 from record high levels hit on September 27, 2024.

The IT index fell 3.2% during the first half of the month, compared to the benchmark Nifty 50’s 1.2% rise. The IT index confirmed a bear market on March 12, which is defined as a decline of 20% from the recent peak.

Worries of a potential slowdown in the U.S. economy and inflationary concerns amid President Donald Trump’s erratic tariff campaign have dimmed the prospects of a near-term recovery in earnings in the sector, said two analysts.

India’s IT sector derives a large chunk of revenue from clients in the United States.

Earlier in the month, Jefferies double-downgraded India’s IT sector to “underweight” from “overweight,” citing high valuations and U.S. economic risks, while Citi said it is too early to be constructive on IT as recent U.S. data suggested a tough near-term outlook.

Meanwhile, recent domestic policy measures such as the government’s cut to income tax and the Reserve Bank of India’s interest rate cut and actions to boost liquidity failed to ignite investors’ interest. The FMCG index rose 2.3% in the first half of March, after dropping 23% in the previous five months.

“Benefits of subsidies to low-income households and the tax-cuts for mid-income households are well understood, the sector lacks incremental triggers and is expensive on relative valuations compared to other sectors,” said analysts led by Amish Shah of BofA India.

Among sectors, financials, oil and gas stocks have seen the highest foreign outflows since October, followed by consumer and auto stocks.