Foreigners sell net INR21.6B of India equity derivatives Feb 25

Foreigners sell net INR21.6B of India equity derivatives Feb 25

Foreign Investors Shift Focus as Equity Derivatives See Net Outflows Amid Regulatory Tightening

Foreign investors turned net sellers of Indian equity derivatives on February 25, offloading ₹21.6 billion ($295 million) in the segment, according to market data. This move contrasts with broader equity market trends, where foreign portfolio investors (FPIs) remained net buyers in February, injecting $2.1 billion into Indian equities as of February 24, surpassing domestic institutional purchases for the first time in 17 months.

The shift in derivatives activity aligns with recent regulatory measures by the Reserve Bank of India (RBI) to curb speculative trading. New rules, effective April 1, prohibit banks from funding proprietary trading and mandate 100% collateral for broker financing, potentially reducing derivative trading volumes by up to 20% and squeezing profit margins for domestic trading firms. Executives warn that smaller proprietary trading firms, reliant on cheaper bank leverage, face existential risks, while foreign firms may gain an edge through offshore financing according to Reuters analysis.

The recent FPI inflows into equities were driven by optimism around India's trade deal with the U.S., improving corporate earnings, and a stabilizing rupee. FPIs added ₹8,129 crore ($1.1 billion) in the first six days of February, reversing three months of heavy selling that totaled ₹62,000 crore ($8.6 billion) in 2025. However, derivatives markets remain sensitive to global macroeconomic shifts, with FPIs trimming positions in IT stocks amid AI-related concerns.

Market analysts note that while the Union Budget's fiscal incentives and easing global trade tensions have bolstered equity sentiment, derivatives face structural headwinds from regulatory tightening. "The RBI's measures aim to cool excessive leverage in derivatives," said a Mumbai-based broker. Investors are advised to monitor rupee stability, U.S. policy shifts, and corporate earnings to gauge future inflows.

According to Bloomberg: Bloomberg, Times of India: Times of India, Reuters: Reuters.