FPIs Pull ₹23,710 Crore from Equities in February; Total Outflow Projected at ₹1 Lakh Crore in 2025

Foreign investors have withdrawn over ₹23,710 crore from Indian equity markets this month, pushing total outflows in 2025 beyond ₹1 lakh crore, largely due to escalating global trade tensions.

Looking ahead, VK Vijayakumar, Chief Investment Strategist at Geojit Financial Services, anticipates a revival in Foreign Portfolio Investment (FPI) once economic growth and corporate earnings improve, which he expects to happen within the next two to three months.

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As per depository data, FPIs offloaded ₹23,710 crore worth of shares from Indian equities up to February 21, following a significant net outflow of ₹78,027 crore in January. This has taken the cumulative outflow to ₹1,01,737 crore in 2025. The heavy sell-off has contributed to a 4% year-to-date decline in the Nifty index.

Market sentiment took a hit after reports emerged that U.S. President Donald Trump was considering new tariffs on steel and aluminum imports, along with reciprocal tariffs on several countries. Himanshu Srivastava, Associate Director-Manager Research at Morningstar Investment Research India, noted that these developments rekindled fears of a global trade war, prompting FPIs to reassess their positions in emerging markets, including India.

Domestically, sluggish corporate earnings and the continued depreciation of the Indian rupee, which hit multi-year lows, further dampened investor confidence in Indian assets, Srivastava added.

Following Trump's victory in the U.S. presidential elections, the American market has attracted significant capital inflows. More recently, China has also emerged as a key destination for portfolio investments. According to Vijayakumar, recent initiatives by the Chinese president in collaboration with leading businessmen have raised hopes of an economic recovery in China.

He noted that Chinese stocks remain undervalued, fueling a "Sell India, Buy China" trend. However, he believes this pattern may not last long, as structural issues continue to hinder China's economic revival.

Additionally, FPIs have withdrawn funds from the debt market, pulling out ₹7,352 crore from the general debt limit and ₹3,822 crore from the voluntary retention route.

The overall trend suggests a cautious stance among foreign investors, who significantly reduced their investments in Indian equities in 2024, with net inflows of just ₹427 crore. This is in stark contrast to the substantial ₹1.71 lakh crore net inflows recorded in 2023, driven by optimism surrounding India's economic strength. Meanwhile, 2022 witnessed net outflows of ₹1.21 lakh crore amid aggressive interest rate hikes by global central banks.

Potential Impact and Future Outlook

The continued outflow of foreign funds could put further pressure on Indian stock markets, potentially leading to heightened volatility in the coming months. With global trade tensions rising and uncertainties surrounding economic policies in major economies, investors may remain cautious in their approach toward emerging markets like India.

Experts believe that in addition to corporate earnings recovery, macroeconomic stability, including a stable currency and controlled inflation, will be crucial in attracting foreign investments back to India. The Reserve Bank of India’s monetary policy stance, along with government initiatives to boost investor confidence, will play a critical role in shaping future capital flows.

Furthermore, domestic institutional investors (DIIs) have played a significant role in stabilizing the Indian markets amid foreign sell-offs. Their continued participation will be essential in mitigating the impact of FPI withdrawals.

If global conditions improve and India's growth trajectory remains strong, foreign investors may return, driving fresh inflows into equities and debt markets. However, much will depend on how global economic policies evolve and whether India can maintain its position as an attractive investment destination.