FPI Selloff Continues: Indian equities witness ₹85,300 crore outflows in 2025 so far; will this trend continue?

Starting 2025 on a negative note, foreign portfolio investors (FPIs) have pulled out a significant ₹85,369 crore from Indian equities so far. After recording net inflows in December 2024, FPIs reversed their stance, leading to heavy outflows in the new year. The exodus has coincided with a sharp decline in Indian markets, particularly in the broader indices, amid global economic uncertainties and high domestic valuations.

Sustained FPI Outflows and Market Impact

In February 2025 alone, FPIs have withdrawn ₹7,342 crore so far, following a massive ₹78,027 crore outflows in January. In contrast, December 2024 saw net inflows of ₹15,446 crore after two consecutive months of withdrawals. FPIs had offloaded ₹21,612 crore in November and a record ₹94,017 crore in October.

This sustained selloff has weighed on Indian equities, which have slipped over 1 per cent year-to-date (YTD). The impact has been more pronounced in the broader markets, with the Nifty Midcap index declining by over 9 per cent. 

According to Prashanth Tapse, Senior VP of Research at Mehta Equities, the FII (foreign institutional investor) selloff remains a key factor behind the recent downturn, further exacerbated by concerns over U.S. tariff policies.

The overall FPI outflows from Indian markets—including equities, debt, hybrid, and debt-VRR segments—stand at ₹66,864 crore in 2025 YTD. Debt market outflows alone have reached ₹2,209 crore.

The FPI sell-off is expected to persist as market sentiment remains under pressure, largely due to US President Donald Trump’s tariff policies. 

A Reuters report indicated that Trump plans to impose new 25 per cent tariffs on all steel and aluminium imports into the US, in addition to existing duties. The report also suggested that reciprocal tariffs on multiple countries could be announced soon. Meanwhile, weak corporate earnings have contributed to the ongoing correction in the Indian stock market. Although Q3 earnings showed a slight improvement compared to the previous two quarters, they have failed to lift investor sentiment.

Expert Opinions on FPI Flows

Analysts remain cautious about FPI trends, citing expensive valuations and macroeconomic headwinds.

Dr. V.K. Vijayakumar, Chief Investment Strategist at Geojit Financial Services, noted that with the dollar index above 108 and the 10-year U.S. bond yield surpassing 4.4 per cent, FIIs are likely to continue selling rallies, limiting potential upside in Indian equities. He emphasised that valuations in the broader market remain stretched, requiring fundamental catalysts such as GDP growth and earnings revival for a sustained market uptrend.

Shrikant Chouhan, Head of Equity Research at Kotak Securities, noted that FPI flows are expected to remain volatile as the Q3FY25 earnings season largely aligned with muted expectations, with management commentary remaining lacklustre overall. He further highlighted that market volatility was exacerbated by frequent shifts in US government tariff policies.

Chouhan also pointed out that FPI outflows were recorded across most key emerging markets in February 2025, except for the Philippines and Thailand. India saw foreign outflows of $430 million, while Brazil, Indonesia, Malaysia, South Korea, Taiwan, and Vietnam registered 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, respectively.

HDFC Securities’ Devarsh Vakil, meanwhile, emphasised that India’s slowing growth and elevated valuations have made its equities less attractive compared to other markets. 

He noted that FPI selling is part of a broader shift affecting emerging market ETFs. However, he suggested that stabilisation in the Indian rupee and stronger economic growth data could potentially reverse the selloff trend.

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before taking any investment decisions.