What Rising FPI Outflows Tell Us about India’s Market Resilience

FPIs are foreign investors who put money into Indian equities and bonds. Their investment activity is closely tracked by market participants because it often reflects how global capital views India. Over the past few months of 2025, however, the trend in FPI flows has been negative, with sustained net outflows.

This naturally raises an important question: Should we be worried about foreign money leaving, or is India strong enough to withstand such shocks?

In this article, we break down what these FPI outflows reveal about the strength and resilience of the Indian market.

FPI Selling Trend in 2025

In the first seven months of 2025, Foreign Portfolio Investors (FPIs) sold nearly Rs 95,642 crore worth of Indian equities. Four of these months saw negative flows, and the trend has continued in August so far. FPIs sold Rs 22,183 crore of equities (till August 18), higher than the Rs 17,741 crore outflow recorded in July 2025. On a year-to-date basis, FPIs have sold Rs 1,17,825 crore worth of equities. This is in stark contrast to 2024, when FPIs ended the year as net buyers, with an inflow of Rs 427 crore.

In the primary market, FPIs bought Rs 2,579 crore in the first half of August 2025 compared with Rs 4,908 crore during the same period last month. So far this year, they have invested Rs 38,814 crore, lower than the Rs 54,884 crore invested in the first eight months of last year.
These figures raise the question: Can the Indian market stay strong as we enter the festive season, which usually brings positive momentum for investors?

Why FPIs Are Pulling Out

Foreign Portfolio Investors are withdrawing from Indian markets in 2025 due to a mix of global and domestic factors:

US-India Trade Tensions: Escalating disputes over tariffs and trade agreements have created uncertainty. The US proposal to impose a 25% tariff, with an additional 25% penalty, on certain Indian exports triggered risk aversion among foreign investors.

Weak Corporate Earnings: Disappointing Q1 results for several Indian companies raised concerns about profitability and growth.

Rupee Depreciation: A weaker rupee makes returns less attractive and increases currency risk for foreign investors.

High US Interest Rates: Rising US Treasury yields have narrowed the yield gap between Indian and US assets, making US investments relatively more appealing.

Valuation Concerns: Indian equities continue to trade at higher multiples than peers, prompting caution and profit-booking.

Global Risk-Off/China Rotation: FPIs have rotated capital towards China and other markets offering lower valuations, government support, and tech-driven opportunities.

Impact of FPI Flows on Nifty

The link between Nifty’s performance and FPI activity has been evident in 2025.

January: FPIs sold heavily, pushing the Nifty down by nearly 3.5% from the December 2024 close of 23,644.80 to a January low of 22,786.90. While the index recovered part of the fall, it still ended the month with a small loss of 0.58%.

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February: The bigger blow came in February, when FPIs sold around Rs 34,574 crore worth of equities. On the last trading day alone, they sold Rs 11,639 crore, their worst single-day sell-off of the year. Out of 20 trading sessions, FPIs were sellers on 18 days. This dragged the Nifty down nearly 5.90% for the month.

March–June: Despite some continued selling in March, the amounts were much smaller and easily absorbed. The Nifty stayed strong, closing positively for four straight months.

July: The negative FPI trend returned, and the Nifty ended the month lower by 2.93%.

Why India’s Market Shows Resilience

Domestic institutional investors (DIIs), including mutual funds, insurance companies, and pension funds, have been crucial in cushioning the impact of foreign selling. Till August 18, they had invested around Rs 4,78,414 crore, more than four times the net FPI outflow. On several occasions, DII inflows even outpaced FPI outflows, helping indices like the Nifty and Sensex remain stable.

For the first time, DII holdings in Nifty 500 companies have overtaken foreign investors’ holdings, marking a shift towards stronger domestic ownership. Other supportive factors include controlled inflation, GDP growth above 6%, government reforms in infrastructure and digitalisation and India’s recent credit rating upgrade by S&P.

Additionally, record SIP inflows and a surge in retail account openings have created a steady stream of domestic capital, particularly in mid-cap and small-cap stocks. This reflects strong faith among Indian investors in the country’s long-term growth story, making them less reactive to short-term global volatility.

Wrapping Up

Despite heavy FPI selling, Indian markets have not suffered major declines; in fact, they have shown resilience and even gained in certain phases. The Independence Day announcement by PM Modi on GST rate cuts further boosted sentiment, with investors focusing more on domestic positives than on foreign outflows.

It’s also important to note that FPIs are not fully exiting India. In August 2025 (till August 18), they invested Rs 6,066 crore in the debt general limit and Rs 138 crore in the debt voluntary retention route. They have also continued putting money into the primary market, while booking profits in the secondary market. In 2024, FPIs had invested over Rs 1,21,637 crore in primary issuances.

Moreover, FPIs currently hold only 18.8% of Indian equities, far below the 30% average in other emerging markets (excluding China). This lower base leaves ample room for foreign investors to increase allocations in the future — which could provide a strong boost to the Indian market when sentiment turns favourable.

(The author is Vice President of Research, TejiMandi)

(Disclaimer: Recommendations, suggestions, views, and opinions given by experts are their own. These do not represent the views of the Economic Times)