'Abysmal CAGR, weak INR': Expert explains why FIIs are dumping Indian stocks

Foreign Institutional Investors (FIIs) have been steadily pulling out of Indian markets, raising concerns among analysts and investors alike. Market expert and Wisdom Hatch founder Akshat Shrivastava on Sunday offered a detailed explanation, pointing to factors such as poor dollar-adjusted returns, currency depreciation, and the Reserve Bank of India's (RBI) struggle to stabilise the rupee.

In the last five years, Nifty 50 has delivered 93% returns, but when adjusted for the 37% depreciation of the Indian rupee (INR) against the US dollar, the actual dollar-adjusted returns drop to 56%, Shrivastava noted. When further factoring in taxes like GST, Securities Transaction Tax (STT), and capital gains, the returns fall even lower, landing at around 47-48%. “CAGR is abysmal,” he added, underscoring the diminishing appeal for foreign investors.

Shrivastava highlighted the RBI’s efforts to maintain the rupee’s stability over the past two years through aggressive forex reserve interventions. “The RBI over the last 2 years had been selling its FOREX reserves to save INR. Now, looks like this war is lost,” he remarked. According to him, this erosion of the rupee’s value and the diminishing returns are the primary reasons behind the FIIs’ exit. “There is just not enough returns for them to stay interested,” he concluded.

This comes amid a broader sell-off by foreign portfolio investors (FPIs), who offloaded nearly Rs 1 lakh crore worth of Indian equities in January alone. Kranthi Bathini, Director of Equity Strategy at WealthMills Securities, observed, "Foreign investors had reduced their participation before the Budget. Now, we need to see how FPIs behave today. Their activity will be crucial in determining if the markets recover or fall further."

Adding to the market’s woes, US President Donald Trump’s recent tariff announcements have exerted additional pressure on Indian equities. On Monday, the benchmark indices Sensex and Nifty reflected this strain, with the Sensex falling 319.22 points to close at 77,186.74, snapping a five-day rally. The Nifty also declined by 121.10 points, settling at 23,361.05.

FIIs offloaded equities worth Rs 1,327.09 crore on Saturday, according to exchange data.

Among the Sensex constituents, Larsen & Toubro, Tata Motors, Hindustan Unilever, Asian Paints, ITC, Power Grid, NTPC, and Reliance Industries were the major laggards. However, some stocks managed to buck the trend, with Bajaj Finance soaring over 5%, alongside gains in Mahindra & Mahindra, Bajaj Finserv, Bharti Airtel, and Maruti.