Foreign investment managers display heightened scepticism towards Indian equities, reaching a two-year peak, as the rupee weakens against US tariffs, elevated share valuations and declining corporate profits diminish the appeal of Dalal Street globally.The negative sentiment towards India has led to accelerated foreign withdrawals recently, with their bearish positions in derivatives reaching the highest level since March 2023, further intensified by the 50% tariffs on Indian exports to the US.“Persistent foreign selling, along with short build-up, reflects a clear risk-off approach because of global uncertainties and domestic headwinds,” said Sudeep Shah, vice-president and head of technical and derivative research, SBI Securities, as quoted by Economic Times.However, for positive observers, the low long-short ratio presents potential opportunity. “From a contrarian perspective, such an extremely low long-short ratio could also signal that the market is oversold in the short term,” further said Shah. “Any positive trigger such as easing global tensions or favourable domestic cues could lead to short covering, resulting in a sharp rebound.”Foreign investors have withdrawn nearly Rs 15,990 crore in August, following a Rs 17,740 crore withdrawal in July. In derivatives, the long-short ratio of foreign positions decreased to 8.28%, from 15% in July’s third week and 36.7% at the month’s start, according to SBI Securities. The long-short ratio indicates traders’ positive versus negative positions in index futures.A declining ratio for FPIs’ futures positions indicates increased short positions, according to experts. “The FPI long-short ratio in index futures is indicating one of the most bearish stances in recent times, with nearly 10 shorts for every long position,” said Ajit Mishra, senior vice president, research, Religare Broking, quoted by ET. This measure ranged between 10% and 20% in late 2024 and early 2025, during heightened pessimism.The Nifty and Sensex have continued their downward trend for six consecutive weeks, the longest such period in five years. The rupee also declined for five straight weeks, reaching 87.65 against the dollar.International investors, already concerned about Indian stocks’ high valuations compared to historical averages and emerging market peers, have shown inconsistent behaviour throughout 2025. The Trump administration’s additional 25% tariff on Indian goods, bringing total levies to 50%, amongst the highest globally, appears to be directing them towards alternative markets.“A number of other equity markets at this point offer better risk-reward propositions and more certainty compared to Indian equities,” said Sham Chandak, head of institutional equities at Elios Financial Services. “Foreign participants in our market sense that with India ending up on the wrong side of tariffs, private capex and in terms consumption is likely to grow slower than anticipated earlier,” he added.
