'10% profit = 4% return': Expert explains why FIIs are not investing in India

Relentless selling by foreign institutional investors (FIIs) continues to drag Indian equity markets, with the Sensex and Nifty falling for the eighth consecutive session on Friday (February 14). Amid this market downturn, Rajat Sharma, founder of Sana Securities, explained how currency fluctuations and taxes significantly reduce returns for FIIs, making Indian markets less attractive.

“Why are FIIs not investing in India?” Sharma asked while illustrating the impact of currency conversion and long-term capital gains tax. “Imagine you invest by converting 1 US $ into Rupee @ 84/dollar and make 10% profit. Your investment grows to Rs. 92.4. You sell and take it back. You pay LTCG = Rs. 1.05. You get = Rs. 91.35. You convert back with $ trading @ 88 against Rupee. You get = US$ 1.04. Basically, 10% profit = 4% return!!”

Sharma’s remarks come amid growing concerns about why FIIs are cautious and cutting back on their investment in India. On Friday, the BSE Sensex fell 199.76 points, or 0.26%, to close at 75,939.21 after plunging nearly 700 points intraday. The NSE Nifty declined 102.15 points, or 0.44%, to settle at 22,929.25. Over the last eight trading sessions, the Sensex has tumbled 2,644.6 points (3.36%), while the Nifty dropped 810 points (3.41%).

Top laggards on Friday included Adani Ports, UltraTech Cement, Sun Pharma, IndusInd Bank, NTPC, and Tata Steel. On the other hand, Nestle, ICICI Bank, TS, Infosys, and HCL Tech were among the gainers. “Risk-averse sentiment continues to dominate investors’ minds as corporate earnings have fallen significantly below expectations, particularly in the mid- and small-cap segments,” said Vinod Nair, Head of Research at Geojit Financial Services. He added that external factors such as tariffs, INR depreciation, and weak earnings trends are keeping sentiment low. “Volatility is expected to remain elevated until clarity on tariffs and a recovery in corporate earnings emerges.”

FIIs offloaded equities worth Rs 2,789.91 crore on Thursday, according to exchange data. Analysts believe that ongoing uncertainty around India’s trade relationships, including the recently announced talks for a bilateral trade agreement with the US, could also be contributing to the cautious stance of foreign investors.

Meanwhile, India and the US have pledged to double their bilateral trade to $500 billion by 2030. As part of this commitment, Prime Minister Narendra Modi and US President Donald Trump announced plans to negotiate a multi-sector bilateral trade agreement by fall 2025 to improve market access and reduce duties.