Foreign investors withdrew a record Rs 1.6 lakh crore from Indian equities in 2025 due to global uncertainties. | File Image
Mumbai: Foreign investors exited Indian equity markets in 2025 at an unprecedented scale, withdrawing a record Rs 1.6 lakh crore (USD 18 billion). This marks the worst year ever for foreign portfolio investor (FPI) equity flows, driven by global uncertainties, currency volatility, and concerns over high stock valuations.
Data till December 26 shows FPIs pulled out Rs 1.58 lakh crore from equities, even as they invested over Rs 59,000 crore in Indian debt.
Global Factors Behind the Exit
Experts say the selling was largely due to global headwinds. Rising US bond yields, a stronger dollar, and delayed expectations of US rate cuts made developed markets more attractive than emerging markets like India.
Concerns over potential US tariffs, global trade tensions, and geopolitical risks further reduced risk appetite. The weakening rupee also hurt dollar-based returns, increasing hedging costs for foreign investors.
Domestic Pressures Added to Selling
At home, stretched valuations in certain sectors led FPIs to book profits. Analysts stressed this was more of a short-term adjustment, not a loss of confidence in India’s long-term growth story.
Foreign investors sold equities in eight out of 12 months of 2025, with buying limited to April, May, June and October.
Debt Markets Attract Foreign Money
While equities saw heavy selling, FPIs showed strong interest in Indian debt. Investments were supported by India’s inclusion in global bond indices under the Fully Accessible Route (FAR), offering attractive yields and stability.
FPIs also rotated funds from equities to debt to lock in higher interest rates ahead of an expected global rate-cut cycle.
Domestic Investors Softened the Impact
The sharp equity outflows were partly offset by strong domestic institutional buying, backed by steady SIP inflows from retail investors. This helped Indian markets avoid deeper corrections despite sustained foreign selling.
Sectoral Trends Reflect Caution
Financial services and IT stocks saw the largest outflows, reflecting worries over US growth and margin pressures. In contrast, healthcare, utilities and manufacturing attracted inflows due to long-term themes like infrastructure spending and the PLI-led manufacturing push.
Hope for a Turnaround in 2026
Market experts expect FPIs to return in 2026, supported by better earnings growth, policy continuity, possible US rate cuts, and progress on trade deals. A softer dollar and easing global risks could revive foreign interest in Indian equities.
