FPIs Offload ₹2,700 Crore in Indian Stocks Daily in 2025 Amid Rising Risk Aversion

Foreign Portfolio Investors (FPIs) continued their selling streak for the fifth consecutive month in February, withdrawing ₹41,748 crore from the secondary market amid escalating global trade tensions and the appeal of higher U.S. bond yields.

On the final trading day of February, FPIs offloaded stocks worth ₹11,639 crore, marking the steepest single-day sell-off of 2025 so far. This surpassed the previous record set on January 14, when they withdrew ₹8,132 crore from Indian exchanges.

Since the beginning of 2025, FPIs have pulled out a total of ₹1,23,652 crore from Indian equities, maintaining a net-selling position for 43 out of 46 trading sessions. The average daily outflow stands at ₹2,688 crore.

Last month, they were net sellers in 18 out of 20 sessions, while in January, they offloaded stocks in 25 of 26 sessions, leading to an outflow of ₹81,904 crore.

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While Domestic Institutional Investors (DIIs) have absorbed some of this selling pressure, their efforts have not been sufficient to support a market recovery. Experts highlight that, apart from FPIs, exits by family offices, high-net-worth individuals (HNIs), and retail investors seeking to safeguard margins have left DIIs shouldering the bulk of the sell-off.

The continuous exit of foreign investors has significantly affected domestic equities, dragging both the Nifty 50 and Sensex down by 6% in February—their worst monthly decline since October 2024. Both indices have now recorded losses for five consecutive months, correcting 16% from their peaks.

The broader market has faced even steeper declines due to sustained FPI selling, with the Nifty Midcap 100 and Nifty Small-cap 100 indices plummeting 25% from their all-time highs. The impact of the sell-off has also extended to the Indian rupee, which depreciated by nearly 0.9% over the month.

In addition to global trade tensions, weak earnings in the December quarter, overvalued stock prices, and slowing economic growth have further dampened investor sentiment, contributing to a prolonged market downturn and heightened risk aversion.

Decline in FPI Holdings in Large Caps

Despite their heavy withdrawals from India's $5 trillion stock market, FPIs still hold approximately $800 billion in Indian equities, according to a report by BNP Paribas Exane. This suggests that market volatility may persist if selling pressure continues.

The NSE’s latest data indicates that FPI ownership in NSE-listed and Nifty 50 companies declined by 30 basis points and 15 basis points quarter-on-quarter (QoQ), reaching 13-year and 12-year lows of 17.4% and 24.3%, respectively, in the December quarter. In contrast, FPI holdings in the Nifty 500 Index remained stable at 18.8%, suggesting that the majority of selling has occurred in large-cap stocks.

Meanwhile, reports indicate that foreign investors are shifting funds to Chinese markets, anticipating economic recovery following Beijing’s recent policy measures. Additionally, the emergence of Chinese AI startup DeepSeek, which presents itself as a free alternative to ChatGPT, has boosted sentiment toward technology stocks, particularly those listed in Hong Kong.

Continued Volatility as FPIs Remain Cautious

Vipul Bhowar, Senior Director of Listed Investments at Waterfield Advisors, commented, "The elevated valuations of Indian equities, coupled with concerns over corporate earnings growth, have resulted in a sustained outflow of foreign portfolio investments. Earnings reports for the third quarter of fiscal year 2025 have been subdued, creating an atmosphere of uncertainty. Forward earnings revisions have struggled, with downgrades outnumbering upgrades, particularly among companies outside the Nifty 50."

This challenge is further exacerbated by declining commodity prices and reduced consumer spending, which negatively impact corporate profits and weaken the attractiveness of Indian equities to foreign investors. The recent market downturn has been driven by rising U.S. bond yields, a stronger dollar, and global economic uncertainties, prompting investors to shift focus to U.S. assets.

"As a result, FPIs’ holdings in Indian equities have fallen to multi-year lows due to persistent selling, and investors are likely to wait for signs of recovery before making a comeback. Until then, volatility in Indian markets is expected to persist amid ongoing global and domestic challenges," he added.