FII Exodus & Fed Uncertainty: Why Indian Markets Fell Despite Strong Q2 Earnings

On October 30, 2025, Indian markets closed sharply lower, bucking the trend you might expect from another solid day of corporate earnings. While companies like Larsen & Toubro (L&T), NTPC Green Energy, and PB Fintech reported impressive numbers, the Sensex tumbled 592.67 points (0.70%) to close at 84,404.46, while the Nifty 50 fell 176.05 points (0.68%) to finish at 25,877.85. The reason? A perfect storm of foreign investor selling and doubts about the direction of global monetary policy.

The Two Stories: Strong Earnings Meet Global Headwinds

Here’s where it gets interesting for retail investors like you. The earnings being announced today were genuinely strong. L&T reported a 16% year-on-year jump in consolidated net profit to ₹3,926 crore, with revenues climbing 10% to ₹67,984 crore. The company’s order inflows—a crucial indicator of future revenue—surged 45% to ₹115,784 crore in the quarter alone. Brokerages immediately upgraded targets, with Motilal Oswal raising L&T’s price target to ₹4,500 from ₹4,300.

Yet despite such stellar numbers, L&T shares managed only a 0.91% gain to ₹3,987.80. This disconnect between corporate health and market performance tells you something crucial: global sentiment has started overpowering domestic fundamentals.

SAIL (Steel Authority of India) offers another lesson. While its Q2 revenue rose 8.2% to ₹26,704 crore, net profit crashed 53% year-on-year to ₹418.72 crore due to margin compression. The stock initially jumped 8% on hopes during pre-market trading but ultimately closed 2.83% lower at ₹136.57 by day’s end. This whipsaw captures the mood perfectly—even good news is being met with profit-taking.

The Real Culprit: Foreign Money Is Leaving

The headline numbers tell the real story. Foreign Institutional Investors (FIIs) sold equities worth ₹2,540.16 crore on October 29 alone. This isn’t pocket change; it’s the largest segment of foreign capital calling time on Indian equities.

Why are they selling now? The culprit is Jerome Powell and the U.S. Federal Reserve. On October 29, the Fed cut interest rates by 25 basis points—as expected. But here’s the kicker: Powell’s comments suggested that no further rate cuts are guaranteed in December. The market had priced in more cuts, and the dovish hope evaporated instantly.

When the U.S. offers attractive returns at lower risk, emerging markets like India become less attractive. Higher U.S. rates mean a stronger dollar, which makes India—already facing rupee depreciation worries—less attractive to overseas investors.

For retail investors, this is crucial: FII flows are often the difference between bull and bear markets in India. When they’re exiting, even good earnings don’t protect the indices.

Why The Metal Index Glittered (But Markets Didn’t)

Here’s an interesting subplot. Despite the overall market decline, the Nifty Metal index hit a record high of 10,824.70 earlier in the week, buoyed by hopes of improved U.S.-China trade relations ahead of the expected Trump-Xi meeting and lower interest rates boosting demand for commodities. Stocks like Hindustan Zinc, NMDC, and others in the metals space rallied hard.

But the enthusiasm didn’t spread to the broader market. The oil & gas index gained nearly 2%, and a few other sectoral indices stayed in green, but the IT sector (down 1.14%), telecoms, and financials dragged everything down.

The Technical Picture: What You Should Watch

From a technical standpoint, analysts are placing crucial support for Nifty at the 25,900–26,000 zone. If Nifty closes below 25,900, expect more weakness. On the upside, immediate resistance stands at 26,100–26,200. A sustained move above that could open doors toward 26,300–26,400.

The broader takeaway: Unless foreign investors stabilize, and the Fed signals more clarity on future rate cuts, the 25,900 support remains fragile. With India VIX steady around 12, volatility isn’t spiking to danger levels yet, but complacency is unwarranted.

What This Means For Your Portfolio

If you’re holding quality stocks like L&T, NTPC, or other earnings winners, don’t panic. The fundamentals remain intact, and companies are delivering real growth. What’s hurting them is not their performance but the global money flow. Historically, such episodes are temporary, and money often returns when the Fed’s stance becomes clearer.

However, if you’re eyeing entry points, October 30’s decline offers opportunities. Sector rotation might continue—defensive plays and dividend stocks could outperform as investors seek stability.

What to Watch Next

• November 5, 2025: Watch for any updates on the Trump-Xi meeting scheduled for later this week. Trade deal progress could reignite risk appetite.
• December 2025 FOMC Meeting: The real deciding factor for foreign flows. If Powell hints at cuts in December, expect money to return to India.
• RBI Monetary Policy (December): The Indian central bank might take cues from the Fed. Rate cuts here could support equity valuations.
• 25,900 Support Level: If Nifty breaches this on a closing basis, expect further downside toward 25,700.
• Weekly Close Around 25,900-26,000: Crucial for determining medium-term sentiment. A strong close above 26,000 would signal stabilization.
• Earnings Momentum: Despite today’s fall, strong quarterly results from L&T, PB Fintech, and others suggest fundamentals remain solid.

This article is only for information purposes and is not investment advice. Before investing, do your own research.