Investors worldwide are watching out for global cues that signal the direction of the market, and policy shifts that will help identify potential in themes and sectors as well.

With the recent plunge of the broader markets being largely attributed to foreign institutional investors’ sell-off, the lines that connect the global markets with India’s are clearer than ever.

Mahesh Nandurkar, managing director of Jefferies India, identifies a “domino effect” of sorts that the FII flows have on India’s information technology sector. Decoding the correlation between US market performance, FII selling and the market back home raise concerns about the outlook on the Indian IT sector.

IT Sector’s Resilience

The Nifty IT has plunged about 17% from its peak in December and this means that the sector was among the last to fall during the broader market fall. While the fall started much earlier for other sectors, starting to slip much later, the index only fell about 12.5% so far this year.

The FPIs have sold $17 billion worth of equities in the secondary markets so far in 2025. The selling specifically in the IT sector has seen a 5% outflow, while other sectors see about 4.2% sell-off on average.

The net assets sold by the FIIs stands at 0.78% in the IT sector specifically. This is lower than the average selling across categories that adds up to 1.13%. This strength of the sector is broadly sustained by the IT sector in the US and its performance.

FII Flows Into Non-US Markets

The FII sell-off has been one of the primary drivers of the domestic market fall, along with other factors. Given recent developments on the global front like US tariffs and more, this trend is expected to change soon.

“With an anticipated FII inflow into the non-US market, the US IT sector might see a slip. I do believe that the intensity of the FII selling will reduce and ideally reverse,” said Nandurkar.

So, if the trend reverses on the back of various global cues, the flows are expected to flow into non-US markets. “Increased flows to Europe and China are happening as US markets have peaked out and the flow is into non-US markets. Not India just yet, but we should see something in the next two to three months,” he added.

FII Trend Reversal

Zooming into the changes that this reversal will bring domestically, the Indian IT sector is in the frontline of impact. This is because the IT sector held up the valuations in the large-cap category. A reversal in trend will also mean a possible hit in the valuations of these IT companies.

“Now, IT is pulling up a lot of large-cap valuations to the higher side in India. Stocks have done well, on the back of good numbers in US markets. The slowed growth numbers in the US will spill over to our IT sector, so the outlook from the US is weakening and it’s already getting captured,” Nandurkar said.

The IT sector can be the one that may not do so well going forward, the analyst said, as a trend reversal would negatively impact the sector.

. Read more on Markets by NDTV Profit.Increased FII flows to Europe and China are happening as the US markets have peaked out and the flow is into the non-US markets.  Read MoreMarkets, Notifications 

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