While the risk-off sentiment on India has prompted foreigners to accelerate exits in recent weeks, their net bearish positioning in derivatives is the highest since March 2023, with the 50% tariffs on Indian exports to the US deepening the cautious undertone.

“Persistent foreign selling, along with short build-up, reflects a clear risk-off approach because of global uncertainties and domestic headwinds,” said Sudeep Shah, vice-president and head of technical and derivative research, SBI Securities.

Agencies

‘Wrong Side of Tariffs’
Foreign investors have sold shares worth nearly Rs 15,990 crore so far in August, after pulling out Rs 17,740 crore in July. In the derivatives segment, the long-short ratio of foreigners’ positions fell to 8.28%, from 15% in the third week of July and 36.7% at the beginning of that month, according to SBI Securities. The long-short ratio is a widely tracked indicator of traders’ bullish bets versus the bearish ones in index futures.

Live Events

When this ratio for FPIs’ futures positions falls, it signals a build-up of short positions by them, experts said.

“The FPI long-short ratio in index futures is indicating one of the most bearish stances in recent times, with nearly 10 shorts for every long position,” said Ajit Mishra, senior vice president, research, Religare Broking. This gauge was between 10% and 20% late last year and early in 2025, when the sentiment was much more bearish.

The Nifty and Sensex have just extended their losing run to the sixth week in a row-the longest such spell in five years. The rupee also ended lower for a fifth week running at 87.65 against the dollar.

Overseas investors, already uneasy over the rich valuations of Indian stocks compared to their long-term averages and emerging market peers, have been in hot-and-cold mode for most of 2025. The Trump administration’s additional 25% tariff on Indian goods, taking the total levy to 50% -among the highest on any country-may be steering them to other markets.

“A number of other equity markets at this point offer better risk-reward propositions and more certainty compared to Indian equities,” said Sham Chandak, head of institutional equities at Elios Financial Services. “Foreign participants in our market sense that with India ending up on the wrong side of tariffs, private capex and in terms consumption is likely to grow slower than anticipated earlier.”

Silver lining
For optimists, a low long-short ratio reading offers a silver lining.

“From a contrarian perspective, such an extremely low long-short ratio could also signal that the market is oversold in the short term,” said Shah. “Any positive trigger such as easing global tensions or favourable domestic cues could lead to short covering, resulting in a sharp rebound.”