Will The Israel-Iran War Hurt Foreign Investor Sentiment And FII Inflows In The Indian Market?

Foreign Institutional Investors (FIIs) have become net sellers in the Indian stock market after three straight months of continuous buying. According to stock exchange data, FIIs have sold shares worth Rs 4,812.39 crore from the cash segment so far in June 2025.

In contrast, Domestic Institutional Investors (DIIs) have remained active buyers. Between June 1 and June 13, DIIs bought shares worth Rs 44,150.72 crore.

FIIs were net buyers in the previous three months-purchasing Rs 2,014.18 crore in March, Rs 2,735.02 crore in April, and making a significant jump in May with Rs 11,773.25 crore worth of investments.

However, the current geopolitical tensions between Israel and Iran have made global investors more cautious. On Sunday, Israel launched airstrikes on Tehran, and Iran responded with multiple drone and missile attacks. These developments have led to a rise in crude oil prices.

As of June 16, Brent crude prices were trading down by 0.55% to $73.83 per barrel, while U.S. West Texas Intermediate (WTI) crude was down by 0.49% to $70.94 per barrel. Crude oil prices have ended 7% higher on Friday, June 13. The rising oil prices have added to market uncertainty, which is one of the key reasons behind the recent FII sell-off.

"The dominant trend in the market so far in June is the inconsistent activity of FIIs alternating between buying and selling, and sustained heavy buying by DIIs. After buying equity for Rs 19860 crores in May, FIIs turned sellers in early June with a sell figure of Rs 4812 crores in the cash market through 13th June.

In sharp contrast to the FII selling, DIIs have turned sustained buyers on all days of June so far, with a cumulative buy figure of Rs 44150 crores. FII selling is getting completely eclipsed by DII buying, keeping the market resilient," Said Dr. VK Vijayakumar, Chief Investment Strategist, Geojit Investments.

"While FIIs are concerned about the high valuations in the market, DIIs, unperturbed by valuations, are buying, consistently supported by the sustained fund flows into mutual funds.

FIIs have been consistently selling in the debt market, too, due to the low differential in bond yields between US and Indian bonds. This trend is likely to continue since inflation and interest rates in India are on the downtrend, keeping pressure on bond yields." Added VK Vijayakumar of Geojit Investments.

On the economy front, the RBI MPC reduced the repo rate by 50 bps to 5.5% while the stance was shifted back to "neutral" and announced that the CRR will be reduced by 100 bps to 3% in four tranches of 25 bps each between September and November. Meanwhile, May CPI inflation moderated to 2.8% (April: 3.2%). FPI flows are expected to remain volatile.

"FPI flows in June'25 till date were mixed for all key emerging markets. India, Brazil, South Korea, and Taiwan witnessed inflows of US$334 mn, US$434 mn, US$3,683 mn, and US$524 mn, respectively.Indonesia, Malaysia, Philippines, Thailand and Vietnam witnessed outflows of US$238 mn, US$146 mn, US$4 mn, US$65 mn, and US$70 mn, respectively," noted Shrikant Chouhan, Head Equity Research, Kotak Securities.