FPIs hedge fresh risks amid tariff tensions, DIIs offer muted support

Foreign portfolio investors (FPIs) are trimming their exposure to Indian equities in a “risk-off” move, spurred by rising global trade tensions and tariff concerns. Domestic institutional investors, however, appear to be cautiously buying the dip.

Although there is no panic in sight, FPIs have started rebuilding short positions after unwinding them last week. Analysts say this trend is likely to continue, especially with no resolution in sight on the global tariff front following Monday’s sharp sell-off.

“FPIs’ selling is a flight to safety. They are moving towards safer instruments like debt, as they can switch back once the situation calms down,” said Varun Saboo, Head of Institutional Equities at Anand Rathi Shares and Stock Brokers.

Tariff sell-off

The Nifty 50 index lost 3.24 per cent to 22,161.1 points, while the BSE Sensex fell 2.95 per cent to 73,137.9 points on Monday — both benchmarks recording their worst single-day decline in 10 months.

This sharp fall was largely driven by escalating global trade tensions following the announcement of reciprocal tariffs by the United States, which instilled fears of a full-blown trade war and its potential impact on global economic growth.

“Most foreign institutions are adopting a defensive ‘wait-and-watch’ posture, unwilling to deploy fresh capital until global trade tensions show signs of stabilization,” said Akshat Garg, AVP at Choice Wealth. However, FPIs are trimming positions selectively, focusing particularly on sectors with higher sensitivity to global trade, he said.

“Institutional trading desks aren’t hitting panic buttons either,” Garg added, “but they may be increasing hedging activity and tactical shorts, especially in cyclical sectors vulnerable to global growth risks.”

Uncertainty ahead

President Trump’s unwavering stance despite global retaliation has caught investors off guard, deepening concerns about a prolonged trade standoff.

While India is possibly one of the safest markets compared to its peers currently, it is still expected to feel the heat of the trade war if the US remains unwilling to negotiate.

“While Indian markets may not fall as much as others, they will see outflows as global equity premiums go down,” Saboo said. He estimates that Indian benchmark indices could fall another 10–12 per cent if trade tensions persist, before any recovery tied to global resolutions.

“Although FPIs are selling, we’re not seeing major redemptions yet. It seems they’re just taking some risk off the table,” said a dealer at a large institutional brokerage.

Meanwhile, domestic institutional investors are deploying cash and buying at lower levels, but with low conviction, the dealer added.

Published on April 7, 2025