Foreign Investors Pull Back Sharply, Foreign Ownership of Indian Equities Hits Seven-Month Low

Foreign Portfolio Investors (FPIs) have significantly reduced their stake in Indian equities in August, with ownership dropping to a seven-month low, according to data from the National Securities Depository Limited (NSDL). This decline reflects deepening concerns over trade tensions, high valuations, and subdued corporate earnings. 

Sustained Selling Pressure Seen in Equity Markets

During the first fortnight of August, FPIs sold equities worth nearly ₹21,000 crore, reversing net injections of ₹17,741 crore in July. This shift marks a sharp reversal from the ₹38,673 crore inflow recorded between March and June. 

As a result, FPI assets under custody declined to ₹71.08 lakh crore, down 1.2% from ₹71.96 lakh crore recorded in July. 

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Foreign Ownership Slips to Lowest Share since January

Data shows that foreign holdings in Indian equities contracted to 15.98% in early August, the lowest since January. Analysts attribute this drop to rising trade tensions—particularly U.S. tariffs—combined with elevated market valuations and sluggish earnings reports. 

The scale of the sell-off is evident from cumulative withdrawals: FPI disinvestment has topped ₹1.15 lakh crore in NSE-listed stocks so far in 2025. 

Sector-Wise FPI Activity: Heavy Selling with Selective Buying

Sectoral breakdown reveals steep FPI exits from numerous industries:

• Financial services: ₹13,471 crore
• Information technology: ₹6,380 crore

Other significant outflows occurred in oil & gas, power, healthcare, real estate, FMCG, consumer durables, and consumer services. 

Conversely, some sectors registered inward FPI flows, including:

• Telecom: ₹7,446 crore
• Construction materials: ₹1,690 crore
• Construction: ₹1,378 crore
• Capital goods: ₹1,132 crore
• Metals: ₹606 crore 

DIIs Step Up as Domestic Support Strengthens

Amid FPI withdrawals, Domestic Institutional Investors (DIIs) maintained a significant presence. Their equity holdings rose to 17.82% in Q1 (June) from 17.62% in March, valued at ₹81.06 lakh crore. Notably, mutual funds increased their share to 10.61% in July, up from 10.45% in June, with holdings peaking at ₹47.71 lakh crore. 

Conclusion

Due to internal valuation issues and external tariff threats, foreign investment in Indian stocks fell significantly in August, bringing foreign ownership down to almost year-low levels.  Nonetheless, domestic institutions are supporting the market and providing a safety net while foreign money is retreating.  Improved corporate results, valuation adjustments, and a reduction in international tensions are probably the keys to restoring FPI trust.