In January 2025, Foreign Portfolio Investors (FPIs) continued to withdraw from Indian equity markets, resulting in net outflows of Rs 78,027 crore. Indian stocks are currently experiencing a four-month downward trend, marking their worst performance in 23 years. This decline can be attributed to factors such as poor earnings, foreign capital outflows, and economic uncertainty, all of which have dampened the market’s previous record highs.
The recent surge in the US dollar and increasing US bond yields, following Donald Trump’s re-election, have made American assets more appealing to investors. As a result, capital has been shifting away from Indian equities. While FPIs were net buyers of Rs 15,448 crore in December 2024, they have since sold off Rs 94,017 crore in October and Rs 21,612 crore in November, further contributing to the outflow of capital from Indian markets.
Noting the sell-off, Deepak Shenoy, CEO of asset management company Capitalmind Financial Services, said that in February so far, FPIs have sold Rs 2,600 crore equity, but bought Rs 13,400 crore debt. He added that massive debt buying is taking place.
“In February so far, FPIs have sold 2600 cr. equity – bought 13,400 cr. debt. Yesterday’s data not included, so just the first two trading days (Saturday, FPIs didn’t trade). Basically massive debt buying happening. Rupee is weakening mostly speculative, flows are positive,” Shenoy wrote on a post on social media platform X.
What’s behind FPI outflows?
The strengthening of the US dollar and the increase in US bond yields following Donald Trump’s return to the presidency have resulted in a shift of capital from Indian equities to more attractive US assets.
Despite experiencing significant selling in January, Foreign Portfolio Investors (FPIs) reversed this trend in December 2024, becoming net buyers of Rs 15,448 crore. In contrast, FPIs had offloaded Rs 94,017 crore and Rs 21,612 crore in October and November, respectively.
The stronger dollar, elevated US yields, tariff worries, sluggish domestic economic growth and high stock valuations will only drive more FPIs away, said Sanjeev Hota, vice president and head of research of wealth management at Mirae Asset Sharekhan.
According to VK Vijayakumar, Chief Investment Strategist at Geojit Financial Services, the main reason for the recent FPI pullout is the impressive performance of the US economy and corporate earnings, which have exceeded India’s recent growth and earnings trajectory.
Vijayakumar noted that while the Budget has had a positive impact on sentiment, the uncertainty caused by President Trump’s tariff policies has created disruption in the global economic landscape.
“The Budget has improved sentiment, and with growth and earnings recovery expected, the trend could reverse. However, Trump’s tariff policies have injected uncertainty into the global economic landscape.”
FPI vs DII
As foreign portfolio investors (FPIs) continue to withdraw funds from Indian stocks with no signs of slowing down, domestic institutions have stepped in to absorb the selling pressure by injecting billions into the market. They purchased stocks totaling ₹86,591 crore, nearly balancing out the FPI sell-off and preventing a significant market downturn.
Both the Nifty 50 and Sensex saw declines of over 0.5% at the end of January, marking the fourth consecutive month of losses for the indices. This is the first instance in the last 23 years where the key indices have experienced four consecutive months in the red.
The mid- and small-cap stocks faced substantial declines during the month, with the Nifty Small Cap 100 index dropping by 10%, marking the largest monthly decline since February 2022. Additionally, the Nifty Midcap 100 index also saw a decline of 6.10%.
FPIs and govt bonds
According to the Economic Survey 2025 released on January 31, FPIs have invested Rs 62,431 crore in government bonds since their inclusion in the JP Morgan index. The survey also highlighted a surge in FPI debt segment activity, with cumulative flows amounting to Rs 1.1 lakh crore from October 2023 to June 2024, following the announcement of inclusion of Indian Government Bonds (IGB) in the JP Morgan index in October 2023.
On June 28, JP Morgan added 29 government securities under the Fully Accessible Route (FAR) in its emerging market index. India currently holds a 1 percent weight in the index, with planned incremental increases each month up to March 2025. FAR allows non-residents to invest in specified government of India securities without any investment limits.
In FY25, the inclusion resulted in a net inflow of more than $3 billion in Indian FAR bonds, with assets under custody standing at $28 billion as of December 15, 2024, the Eco Survey document showed.