Foreign Portfolio Investors (FPIs) have kicked off 2025 with a notably bearish approach, withdrawing a substantial ₹1.13 lakh crore from Indian equities so far. This marks a sharp reversal from their previous position in December 2024, when they had recorded net inflows into the Indian stock market. However, as the new year unfolded, FPIs shifted their stance, leading to a significant selloff across the Indian markets. The timing of this pullback aligns with a broader slump in Indian stocks, particularly in the broader market indices.
Several factors appear to be contributing to this negative sentiment among FPIs. One major consideration is the ongoing global economic uncertainties, which have caused investors to become more cautious in their outlook. Additionally, high domestic valuations in India are also weighing on investor confidence, leading to concerns about the sustainability of market growth. This combination of external and internal factors has resulted in a scenario where FPIs have been net sellers in four of the past five months, further emphasizing their retreat from the Indian equity market. The situation highlights a shift in investor behavior, as global and domestic market conditions seem to be dampening the appetite for Indian stocks.
Foreign Portfolio Investors (FPIs) have started the year 2025 on a cautious and bearish note, withdrawing a significant ₹1.13 lakh crore from Indian equities within the first two months of the year. This marks a stark reversal from December 2024, when FPIs had recorded positive inflows into the Indian market. After a brief period of optimism in December, the first two months of 2025 have seen a sharp shift in investor sentiment, resulting in considerable outflows from the Indian stock market.
This selloff has come at a time when Indian markets have been under pressure, particularly with the benchmark indices experiencing a decline of more than 6% year-to-date. The broader market indices have been hit even harder, with the Nifty Midcap index falling by over 17% in the same period. Several factors have contributed to this downturn, including global economic uncertainties, which have heightened concerns among investors, and high domestic valuations in India, which are believed to be unsustainable in the current market climate.
In terms of the specifics of the outflows, February 2025 alone witnessed ₹35,694 crore in withdrawals from FPIs, following a larger outflow of ₹78,027 crore in January. These figures highlight the scale of the retreat by foreign investors. This marked a sharp contrast to December 2024, when FPIs injected ₹15,446 crore into Indian equities, after having offloaded ₹21,612 crore in November and an unprecedented ₹94,017 crore in October. This sustained foreign selling over the past several months has had a clear impact on the Indian markets, contributing to a significant dip in equity prices.
In total, FPIs have pulled out ₹1.07 lakh crore from various segments of the Indian market, including equities, debt, hybrid instruments, and debt-VRR (Volatility Risk Reduction) products in 2025 so far. Of these outflows, the debt market alone has seen withdrawals of ₹9,529 crore. These ongoing outflows, combined with the broader global and domestic economic challenges, are likely to continue influencing investor sentiment and market movements in the coming months.
Experts point out that the ongoing Foreign Portfolio Investor (FPI) selloff from Indian equities is being driven by a mix of both global and domestic factors. One of the key global influences is the strengthening of the US dollar and the higher bond yields in the United States. These factors have made investments in emerging markets, including India, less attractive to foreign investors, leading to a significant outflow of capital from these markets. As US assets become more lucrative, particularly with the rise in bond yields, capital tends to flow toward the US, further impacting emerging markets like India.
At the same time, the global investment landscape is shifting. Following Donald Trump’s victory in the US presidential elections, there was a notable shift of global capital towards US markets, which continues to shape investment trends. Additionally, China has recently emerged as another key beneficiary of foreign portfolio inflows. The Chinese government’s efforts to engage with business leaders have created a sense of optimism regarding a potential economic recovery in the country. This optimism has been reflected in the performance of China’s Hang Seng index, which surged by 18.7% in just one month, signaling a positive shift in investor sentiment toward Chinese markets.
In contrast, the Indian market has experienced a decline, with the Nifty index falling by 1.55% during the same period. This divergence in performance between China and India has given rise to what some analysts are calling the “Sell India, Buy China” trade, a short-term trend where investors are pulling money from Indian markets to take advantage of the Chinese market’s rebound.
However, experts like V K Vijayakumar, Chief Investment Strategist at Geojit Financial Services, caution that while this trend may persist in the near term, it is unlikely to be sustained in the long run. China faces its own set of structural economic challenges that could limit the long-term growth potential of its markets. Meanwhile, India remains a key destination for long-term investment due to its strong growth prospects, despite the short-term valuation concerns that have led to the current outflows. Analysts believe that as these concerns ease, foreign investors may eventually return to the Indian market.
Vaibhav Porwal, Co-Founder of Dezerv, pointed out that one of the key factors behind the recent selloff in Indian equities is the premium valuation of the Indian market compared to other emerging markets. While India continues to have a strong long-term growth outlook, concerns about its near-term valuations and corporate earnings have caused some investors to take profits, leading to the current outflows from the market.
India’s stock market has been trading at higher valuations relative to other emerging economies, including countries like Indonesia, South Korea, and Taiwan. This premium pricing has led global investors to reassess their investment positions, especially in light of concerns over whether the high valuations can be justified by the country’s short-term economic performance and corporate earnings growth. As a result, some investors have opted to reduce their exposure to India.
At the same time, China has been implementing economic stimulus measures, such as policy support and regulatory easing, which have helped reignite confidence in its markets. These measures have attracted foreign capital into China, diverting some investment flows away from India. The renewed optimism about China’s economic recovery, combined with India’s elevated market valuations, has made some global investors shift their focus towards Chinese markets in the short term. However, despite these near-term challenges, India’s long-term growth potential remains a strong factor in the global investment landscape.
China’s recent market rally has been fueled by a series of proactive measures aimed at boosting its economy. These include interest rate cuts, increased liquidity injections into the financial system, and specific policies designed to support its struggling property sector. These efforts have helped revive investor confidence, leading to a positive surge in the Chinese stock market. The Chinese government’s intervention has been viewed as an attempt to stabilize the economy and stimulate growth, particularly in sectors that had been underperforming, such as real estate.
However, while some experts acknowledge that China’s market may continue to appear attractive in the short term due to these stimulus measures, they caution that India’s long-term investment appeal remains strong. India’s robust domestic demand, which is driven by a growing middle class and increasing consumer spending, positions it as a key player in the global market for years to come. Additionally, India’s ongoing digital transformation and significant investments in technology infrastructure are expected to drive further economic growth and innovation.
Furthermore, India’s push to develop its infrastructure, including initiatives aimed at improving transport, energy, and urban development, adds to its attractiveness as a long-term investment destination. These factors combined are expected to keep India in focus for investors looking for sustainable growth opportunities in emerging markets, despite the short-term appeal of China’s market rally.
Despite the ongoing outflows, experts remain optimistic that Foreign Portfolio Investor (FPI) sentiment towards India could improve in the coming months. According to V K Vijayakumar, Chief Investment Strategist at Geojit Financial Services, the recovery in FPI investment will likely be driven by India’s economic growth and a rebound in corporate earnings. He believes that signs of this recovery could begin to materialize within the next two to three months, suggesting that investors may become more confident as these positive trends start to take shape.
Vaibhav Porwal, Co-Founder of Dezerv, echoed these views, acknowledging that external factors such as the US monetary policy and the global risk appetite will continue to influence investor decisions. However, he emphasized that India’s long-term structural growth drivers—such as its growing domestic market, technological advancements, and infrastructure development—remain strong and will likely support continued economic expansion. He anticipates that Foreign Institutional Investor (FII) flows could return to India within the next three to six months, as macroeconomic fundamentals improve and corporate earnings begin to show signs of recovery.
In the near term, market volatility is expected to persist as FPIs continue to adjust and rebalance their portfolios in response to shifting economic conditions and market valuations. However, experts believe that with India’s strong economic momentum remaining intact, investor interest from abroad is likely to rebound once the market stabilizes and corporate earnings show consistent growth. This suggests that while short-term challenges may remain, the longer-term outlook for India as an investment destination remains positive.