The foreign selling spree was primarily attributed to stretched valuations in Indian equities, raising concerns about market overheating
Foreign portfolio investors (FPIs) continued their equity sell-off during the week ending July 25, 2025, though at a significantly reduced pace compared to the previous week. Net equity outflows stood at $113 million, down sharply from $1.09 billion in the prior week, bringing total monthly outflows to approximately $756 million.
The Nifty 50 extended its losing streak to four consecutive weeks, closing below its 21-day and 55-day exponential moving averages amid sustained selling pressure in information technology stocks. The index, however, maintained its position above the crucial 100-day EMA near the 24,576 level.
“The 24,550 level coincides with the 61.8 per cent Fibonacci retracement, making the 24,550-24,600 zone a strong support area and an attractive dip-buying opportunity for traders,” said Puneet Singhania, Director at Master Trust Group. “A decisive breach below this range could lead to further downside toward 24,300,” he added.
Bank Nifty mirrored the broader market weakness, declining for the fourth straight week as profit-booking emerged near all-time highs. The banking index closed below its 21-day EMA, signalling short-term weakness, though it remained above its ascending trendline with the 55-day EMA holding firm near 56,000.
FPI selling attributed to stretched valuations
The foreign selling spree was primarily attributed to stretched valuations in Indian equities, raising concerns about market overheating. Global risk aversion intensified amid rising US bond yields and a strengthening dollar, making emerging market investments less attractive to international investors.
“The key drivers behind this retreat were the stretched valuations of Indian equities, prompting concerns of overheating,” noted Himanshu Srivastava, Associate Director at Morningstar Investment Research India. “Additionally, global risk aversion intensified amid rising US bond yields and a strengthening dollar, making emerging market investments relatively less attractive.”
The lack of clarity surrounding the proposed US-India trade agreement, with no resolution in sight before the anticipated August 1 deadline, also weighed on investor sentiment. The rupee weakened for the third consecutive week, further pressuring foreign inflows into the country.
Despite the secondary market outflows, FPIs demonstrated interest in primary market offerings, actively participating in recent initial public offerings. This selective approach suggests investors remain optimistic about specific growth opportunities despite broader market concerns.
In the derivatives segment, trading activity remained robust across all categories. Index options dominated with over 12.8 million contracts traded on July 25, while stock options saw 445,152 contracts changing hands. Open interest in index futures stood at 206,920 contracts worth ₹39,266 crore.
Economic data in focus
Looking ahead, market participants will closely monitor major domestic and global economic indicators, including India’s Industrial Production data for June, Manufacturing PMI for July, the US GDP growth rate, the Federal Reserve interest rate decision, and employment data.
“The Indian stock market will likely keep investors actively engaged in the coming week, supported by a steady flow of Q1 corporate earnings,” Singhania added. The earnings season continues with major companies including IndusInd Bank, Larsen & Toubro, NTPC, Asian Paints, Tata Steel, Sun Pharmaceutical, Maruti Suzuki, Mahindra & Mahindra, Hindustan Unilever, and ITC scheduled to announce results.
The India-UK free trade agreement, involving significant tariff concessions across key sectors, is expected to provide tailwinds to select industries. Market watchers are also monitoring potential progress on an India-US tariff deal, which could prove decisive for market direction in the near term.
“Overall, the week saw persistent but more measured FPI selling in equities, driven by valuation concerns and global macro headwinds,” Srivastava concluded.
For the week ahead, traders are adopting a “buy-on-dips” approach, with 25,100 acting as key resistance for Nifty 50. A sustained move above this level may trigger further upside toward 25,400, while Bank Nifty faces immediate resistance at 57,100.
Published on July 26, 2025
