FIIs Sell Rs 11,820 Crore Worth of Indian Equities in First Week of December: Can RBI Liquidity Be a Succor?

Foreign Institutional Investors (FIIs) have initiated December with a substantial selling spree, offloading a net of Rs 11,820 crore worth of Indian equities in the first week. This continues a trend of foreign outflows, with year-to-date sales reaching a significant Rs 1,55,495 crore. The persistent selling by FIIs has raised concerns about market stability and the potential impact on the Indian Rupee.

Drivers of FII Selling

Several factors are contributing to the ongoing FII sell-off. A primary driver is the depreciation of the Rupee, which has fallen by approximately 5% this year. This makes Indian assets less attractive to foreign investors, as their returns, when converted back to their home currency, are diminished. Concerns regarding stretched valuations in certain segments of the Indian market, including financials, consumer goods, and mid- and small-cap stocks, are also prompting FIIs to reassess their allocations. Furthermore, global uncertainties, geopolitical tensions, and volatile global markets contribute to a cautious sentiment among foreign investors.

RBI's Response: Injecting Liquidity

In response to the evolving liquidity conditions and to support market stability, the Reserve Bank of India (RBI) has announced a series of measures to inject durable liquidity into the financial system. These include conducting Open Market Operations (OMO) purchases of government securities worth ₹1 trillion and a three-year dollar–rupee buy/sell swap of $5 billion. The RBI has already notified that it would purchase government securities worth ₹50,000 crore on December 11, 2025, and conduct the balance ₹50,000 later this month.

How RBI Liquidity Measures Can Help

The RBI's liquidity injection aims to counter the impact of FII outflows by ensuring sufficient liquidity in the banking system. OMO purchases inject liquidity as the RBI pays banks for the securities. This can help to ease pressures on the Rupee and prevent a sharp rise in short-term yields. Moreover, these measures aim to facilitate monetary transmission, ensuring that the central bank's policy decisions are effectively passed on to the broader economy. By increasing liquidity, the RBI also seeks to support economic growth and improve market sentiment.

DIIs as a Counterbalance

While FIIs have been net sellers, Domestic Institutional Investors (DIIs) have been strong buyers, providing a crucial counterbalance to the foreign outflows. In the first week of December, DIIs bought equities worth Rs 4,189 crore, and they have purchased equity for Rs 19,783 crore during this period. Sustained fund flows and positive sentiment driven by robust GDP growth numbers and expectations of an uptick in corporate earnings are supporting DII buying.

Market Impact and Future Outlook

Despite the FII selling pressure, the Indian stock market has shown resilience. On December 5, 2025, the Sensex rose to 85712 points, gaining 0.52% from the previous session. The RBI's recent decision to cut the repo rate by 25 basis points to 5.25% and lower its inflation forecast has further boosted market sentiment. The RBI has also raised its FY26 real GDP growth forecast to 7.3% (from 6.8%), supported by a stronger-than-expected Q2 print and modest upward revisions to H2 projections.

Looking ahead, the tug-of-war between FII selling and DII buying is expected to continue. The effectiveness of the RBI's liquidity measures in mitigating the impact of FII outflows will be closely watched. A durable rebound in corporate earnings and a stabilization of the Rupee will be crucial in coaxing global investors back to Indian equities.