Foreign Institutional Investors (FIIs) are shifting their focus from India to china. This is not the first time happening in India or China. They keep rotating their money according to trend and buzz. They will rush to anywhere for making good returns.This Shifting of focus of FII from india to china is called "Sell India, Buy China," has created confusion among investors.
Many are asking:
- Why are FIIs choosing China now and not last year?
- What has changed in China’s economy?
- Is India's growth story over?
- Should Indian investors worry?
FII Flows
What Are the Real Numbers?
Let's see the actual data on reshuffles on money.
- About ₹16,000 crore ($2 billion) From India outflows from stocks in January 2025.
- China received ₹27,200 crore ($3.4 billion) in FII inflows in the same period.
- The MSCI China Index jumped 8% in one month due to renewed buying.
This shuffle of money confirms that FIIs are actively selling Indian equities and shifting money to China.
Why Are FIIs Buying China Now and Not in 2024?
China’s industries and markets have been cheap for a long time. But FIIs were not interested last year. But What changed now?
i) China Was Unattractive Due to Economic Problems in 2023
In 2023, China faced many economic issues.
The real estate sector of China was collapsed. Big real estate developers like Evergrande and Country Garden defaulted on loans. This has been happening in China for the last 5 years. This created fear in the market. If big developers getting collapse what will be the future of small developers?
Chinese Tech companies were under strict government control. The Chinese government cracked down on big firms like Alibaba and Tencent as we are aware of such news. Investors were scared of more restrictions.
Consumer demand was weak. People in China were not spending much after COVID-19. Businesses were struggling to grow.
Overall chinese market was not giving any confidence to foreign investors.
ii) The Chinese Government Announced a Big Stimulus in Late 2024
In December 2024, the Chinese government has taken action to boost the economy and attract investors.
The government introduced:
- A 23 lakh crore ($278 billion) stimulus package to increase economic activity.
- People's Bank of China (PBOC) has cut the interest rate to make borrowing cheaper. This will boost more startups and provide cheap loans.
These steps made China more attractive for FIIs. Investors who ignored China last year started buying now because they believe the worst is over.
iii) US Federal Reserve Rate Cuts Made China Attractive
The US Federal Reserve (Fed) plays an important role in global investment sentiments for the short term. When US interest rates are high, FIIs prefer to keep their money in safe US assets instead of emerging markets. In 2023, US interest rates were very high (above 5%).
Higher interest rates make US bonds and fixed-income assets more attractive because they offer risk-free returns. FIIs reduced investments in emerging markets (including China) since the risk-reward ratio was not favourable.
In early 2025, the Fed signalled rate cuts. Lower US rates mean FIIs look for higher returns in emerging markets like China.
China became the first choice because its stock prices were already low. US markets have not given good returns.
iv) The "Herd Mentality" of FIIs
FIIs do not always invest based only on fundamentals. They follow each other. When a few big funds started buying, others joined in. They work together they exit together.
When China's market started rising in January 2025, many FII funds rushed to invest. This created momentum, pushing prices higher and attracting even more FIIs.This is why FIIs are buying China now and not last year—they were waiting for positive signs.
Why Are FIIs Selling India?
FIIs are not just buying China. This will be wrong to predict about FII that they are buying only China stocks. They will roam anywhere to make good returns.
Why they are selling Indian stocks. ?
i) India’s Stock Market is Expensive
Indian stock prices have increased a lot in the last two years.
The Nifty 50 P/E ratio crossed 22x, making it one of the most expensive markets in the world.
Expensive stocks mean lower future returns. FIIs saw an opportunity to book profits and move money elsewhere.
ii) RBI’s Tight Liquidity Policy
Unlike China, India’s RBI is not cutting interest rates.
The RBI has kept liquidity tight even after covid over. The main reason is Inflation.
Due to these High interest rates, any borrowing is costlier, causing slow momentum.
iii) FIIs Rotate Money Based on Cycles
FIIs do not stay in one market forever. This is a thumb rule for them and they will follow it everywhere.
In 2023, FII found the Indian market trading at a discount and they bought heavily.
In 2025, they are booking profits and moving to undervalued China.
This is a normal cycle. Once India’s valuations cool down, they will return.
Expert Opinions: What Analysts Say
Goldman Sachs:
"China's latest stimulus and rate cuts have made it an attractive short-term trade. However, India's long-term structural story remains strong."
Morgan Stanley:
"India is expensive right now, and China is at historically low valuations. FIIs are simply rotating their portfolios."
JP Morgan:
"India is still the preferred destination for long-term business investments, but short-term market cycles favour China."
Does This Mean India's Growth Story is Over?
No. This is just a short-term tactical move by FIIs. FDI into India remains strong. Big companies like Apple, Tesla, and Foxconn are expanding operations in India. India’s GDP growth is still projected to be above 6.5% in 2025. China still faces long-term risks. The property crisis and government control over businesses could hurt future growth.
Once India's stock valuations are correct, FIIs will likely return.
What Should Indian Investors Do?
This is normal and it will keep happening in every market. They will come again to make a profit. Therefore Instead of following FIIs blindly, investors should:
✅ Look for correction opportunities in Indian stocks.
✅ Stay invested in India for long-term growth.
The bottom line is: This is a temporary FII rotation, not a structural shift in global investment trends.
Final Takeaway: Understanding the Bigger Picture
The "Sell India, Buy China" trend is happening because:
China was undervalued for a long time but lacked investor confidence.
The Chinese government introduced strong stimulus to boost markets.
US rate cuts increased demand for emerging markets.
India’s stock market became expensive, leading to FII profit booking.
However, India remains a long-term winner due to strong economic fundamentals and global business investments.
Instead of panicking over short-term FII moves, investors should focus on valuation, fundamentals, and long-term growth trends.
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