FPI Selloff Persists: Indian Equities Face ₹85,300 Crore Outflows in 2025

The year 2025 has begun on a negative note for Indian markets as foreign portfolio investors (FPIs) have pulled out a substantial ₹85,369 crore from equities so far. After recording net inflows in December 2024, FPIs reversed their stance, triggering significant outflows at the start of the new year. This mass exodus has coincided with a notable downturn in Indian markets, particularly in the broader indices, as global economic uncertainties and high domestic valuations weigh on investor sentiment.

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Continued FPI Outflows and Market Consequences

In February 2025 alone, FPIs have withdrawn ₹7,342 crore, following a sharp outflow of ₹78,027 crore in January. This comes in stark contrast to December 2024, when net inflows stood at ₹15,446 crore after two months of withdrawals. FPIs had earlier sold off ₹21,612 crore in November and a record ₹94,017 crore in October.

The ongoing selloff has put pressure on Indian equities, which have declined by over 1% year-to-date (YTD). The impact has been more severe in broader markets, with the Nifty Midcap index falling by more than 9%.

Prashanth Tapse, Senior VP of Research at Mehta Equities, highlighted that the FII (foreign institutional investor) selloff has been a major driver of the recent market downturn, further aggravated by concerns surrounding U.S. tariff policies.

The cumulative FPI outflows from Indian markets—including equities, debt, hybrid, and debt-VRR segments—have reached ₹66,864 crore in 2025 YTD. Within this, the debt market alone has seen outflows of ₹2,209 crore.

Market sentiment is expected to remain weak, with the FPI sell-off likely to persist, largely influenced by U.S. President Donald Trump’s tariff policies.

A Reuters report indicated that Trump is planning to impose fresh 25% tariffs on all steel and aluminum imports into the U.S., adding to existing duties. Additionally, reciprocal tariffs on various countries could be announced soon. Weak corporate earnings have also contributed to the ongoing market correction. While Q3 earnings showed marginal improvement compared to the previous two quarters, they have failed to boost investor confidence.

Experts Weigh in on FPI Trends

Analysts remain cautious regarding FPI flows, citing high valuations and macroeconomic headwinds.

Dr. V.K. Vijayakumar, Chief Investment Strategist at Geojit Financial Services, pointed out that with the dollar index surpassing 108 and the 10-year U.S. bond yield rising above 4.4%, FIIs are likely to continue selling during market rallies, capping potential gains in Indian equities. He emphasized that broader market valuations remain stretched and require fundamental catalysts such as GDP growth and earnings revival for a sustained uptrend.

Shrikant Chouhan, Head of Equity Research at Kotak Securities, noted that FPI flows are expected to remain volatile, as the Q3FY25 earnings season met only modest expectations, with management commentary remaining lackluster. He also highlighted that market volatility has been exacerbated by frequent shifts in U.S. trade policies.

Chouhan further noted that FPI outflows were observed across most major emerging markets in February 2025, with the exception of the Philippines and Thailand. India experienced foreign outflows of $430 million, while Brazil, Indonesia, Malaysia, South Korea, Taiwan, and Vietnam saw outflows of $106 million, $202 million, $59 million, $41 million, $1,422 million, and $125 million, respectively. Meanwhile, the Philippines and Thailand recorded inflows of $21 million and $43 million.

Devarsh Vakil of HDFC Securities emphasized that India’s slowing growth and high valuations have made its equities less attractive compared to other markets. He noted that FPI selling is part of a broader trend impacting emerging market ETFs. However, he suggested that a stabilizing Indian rupee and stronger economic growth data could help reverse the selloff.