FPI Selloff Slows: Foreign Investors Stay Net Sellers in March, but Outflows Decline

Indian stock markets have staged a significant recovery in recent trading sessions, demonstrating resilience despite weak global sentiment amid intensifying trade tensions and signs of economic slowdown in the U.S. The domestic equity markets are attempting to bounce back from February’s downturn, which saw the Nifty 50 index experience five consecutive months of decline—the longest such streak in nearly three decades.

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Key Drivers of the Recovery

The resurgence has been primarily fueled by gains in metals stocks and oil & gas stocks, bolstered by declining crude oil prices and a weakening U.S. dollar index. The depreciation of the world’s reserve currency has also contributed to a slowdown in foreign portfolio investor (FPI) outflows from emerging markets, including India. This, in turn, has supported the revival of the country’s stock market, currently the fifth-largest globally.

Additionally, the extended sell-off in domestic equities, which had made India the worst-performing major market since late September, has brought valuations to more attractive levels. Market analysts suggest that this has created opportunities for value investors to re-enter the market.

FPI Selling Continues but Shows Signs of Moderation

Foreign portfolio investors, who have been a major driver of the Indian market’s underperformance, have continued to pull out funds in March, albeit at a reduced pace. So far this month, FPIs have withdrawn ₹24,753 crore, pushing total equity outflows for the year 2025 to ₹1,37,354 crore.

Since October, aggressive FPI selling has driven the Nifty 50 and Sensex down by 15% from their record highs. Although domestic institutional investors (DIIs) have been stepping in to counterbalance these outflows, their efforts have not been sufficient to trigger a meaningful market rebound.

Moreover, apart from FPIs, other investor groups—including family offices, high-net-worth individuals (HNIs), and retail investors—have also been liquidating positions to protect margins, further increasing pressure on DIIs.

Potential for FPI Reinvestment in India

Looking ahead, analysts anticipate that a weaker U.S. dollar index may curb capital inflows into American markets, potentially redirecting funds back into emerging economies like India. A recent report by global brokerage firm Jefferies highlights that, historically, India has outperformed other emerging markets within 90-180 days following a period of underperformance.

The report further states that India’s valuation premium has now returned to more reasonable levels, significantly lower than its peak in 2024. With the dollar index down 6% from its highest point, there is potential for a reversal in FPI flows. Jefferies' FPI ownership tracker indicates that India's positioning among emerging market funds is currently at a decade low, suggesting room for a resurgence in foreign investment.

Short-term market sentiment could also be buoyed by positive economic indicators and improved liquidity conditions.

Dr. V K Vijayakumar, Chief Investment Strategist at Geojit Financial Services, noted, “FII selling in India persisted into early March. However, there are signs that the intensity has slightly decreased in the last few days. Meanwhile, Chinese equities have seen substantial buying interest, driven by attractive valuations and supportive measures from the Chinese government.”

The surge in Chinese stocks has propelled the Hang Seng Index to a year-to-date (YTD) return of 23.48%, in contrast to the Nifty’s -5% return. However, Vijayakumar cautions that this may be a short-term cyclical trend, given that Chinese corporate earnings have underperformed consistently since 2008.

He also pointed out that the recent decline in the dollar index is likely to limit fund flows to the U.S., while political developments, such as former President Donald Trump’s tariff threats, are shifting investor preferences toward domestic consumption-driven sectors like financials, telecom, hotels, and aviation, rather than globally linked industries.