Foreign portfolio investors (FPIs) exited Indian equities at an unprecedented scale in 2025, withdrawing nearly ₹1.6 lakh crore (around USD 18 billion), marking the largest annual equity outflow on record, amid global macroeconomic uncertainty, volatile currency movements and rising bond yields in developed markets.
The outflow surpasses the previous peak withdrawal of ₹1.21 lakh crore in 2022 and comes after a marginal net inflow of ₹427 crore in 2024. In contrast, 2023 had witnessed strong equity inflows of ₹1.71 lakh crore, highlighting the sharp reversal in sentiment this year.
Global Factors Behind FPI Exit
The massive sell-off was driven largely by global headwinds, including:
- Rising US bond yields, which improved risk-free returns in developed markets
- A stronger US dollar, reducing the attractiveness of emerging-market assets
- Geopolitical tensions and global trade uncertainty, including concerns over potential US tariffs
- Currency volatility, with phases of rupee depreciation eroding dollar-based returns
These factors collectively shifted global capital flows towards developed markets, away from emerging economies such as India.
Equity Outflows, Debt Inflows
While FPIs were net sellers in equities, they showed a clear preference for Indian debt, investing over ₹59,000 crore in 2025, according to depository data available till December 26.
The debt inflows were supported by:
- India’s inclusion in global bond indices
- Attractive yield differentials
- Portfolio rebalancing amid volatile equity markets
The phased inclusion of Indian government securities under the Fully Accessible Route (FAR) in global indices such as the JP Morgan Global Emerging Markets Index helped create steady demand from passive global funds.
Domestic Markets Absorb the Shock
Despite heavy foreign selling, Indian equity markets remained relatively resilient due to strong domestic institutional investor (DII) participation, backed by rising systematic investment plan (SIP) inflows from retail investors.
FPIs sold equities in eight out of twelve months in 2025, with buying limited to April, May, June and October. The sharpest selling occurred in the first quarter, with withdrawals of over ₹1.16 lakh crore between January and March, driven by global trade tensions, rising yields and rupee weakness.
Sectoral Impact
Sector-wise, financial services and IT stocks saw the highest foreign outflows, reflecting concerns around US growth, margin pressures and a subdued global capex cycle.
In contrast, healthcare, utilities and manufacturing attracted selective inflows, supported by long-term themes such as infrastructure development and policy-led manufacturing initiatives.
Outlook for 2026
Market participants broadly expect foreign flows to stabilise and potentially turn positive in 2026, contingent on easing global financial conditions, moderation in bond yields and greater clarity on trade and geopolitical developments.
The trajectory of global interest rates, currency movements and trade policies is expected to remain the key determinant of foreign investor behaviour in the coming year.
Disclaimer
This article is for informational purposes only and does not constitute investment advice, stock recommendations or solicitation to buy or sell any securities. Market investments are subject to risk.
