Sustained FPI Selling Triggers Market Downturn as Global Risks Mount
The Indian stock market is facing relentless selling pressure from Foreign Portfolio Investors (FPIs), who have withdrawn ₹41,748 crore in February 2025 alone, extending their selling spree for the fifth consecutive month. The persistent outflows have significantly impacted the equity markets, causing major indices to correct sharply amid global economic uncertainties and rising risk aversion.
As FPIs continue to offload Indian stocks at an alarming rate, their cumulative withdrawals from the secondary market in 2025 have already reached a staggering ₹1,23,652 crore, averaging ₹2,700 crore in daily outflows. With 43 out of 46 trading sessions in 2025 recording net FPI sales, investor sentiment remains fragile, and market volatility is expected to persist.
Market Trends and Selloff Impact
- February 2025 FPI outflows: ₹41,748 crore
- Total FPI withdrawals in 2025 (YTD): ₹1,23,652 crore
- Average daily FPI selling: ₹2,688 crore
- Biggest single-day selloff: ₹11,639 crore on February 29, 2025
- Nifty 50 and Sensex performance: Down 6% in February, marking the worst monthly decline since October 2024
- Mid and small-cap impact: Nifty Midcap 100 and Nifty Smallcap 100 indices have corrected by 25% from their peaks
- Rupee depreciation: Nearly 0.9% decline in February, driven by sustained capital outflows
The Indian stock market, which was once among the most preferred investment destinations for foreign investors, is now witnessing a sharp reversal as FPIs shift capital to other global markets, particularly China and the United States.
Why Are FPIs Selling Indian Stocks?
Several key factors are driving this aggressive selloff by foreign investors:
1. High U.S. Bond Yields Attract Capital Away from Emerging Markets
- The U.S. Federal Reserve’s monetary policy stance and higher bond yields have made U.S. assets more attractive compared to Indian equities.
- As a result, FPIs are reallocating funds to U.S. markets, reducing exposure to emerging economies like India.
2. Rising Global Trade Tensions and Economic Slowdown
- Uncertainties in global trade policies, along with geopolitical tensions, are making foreign investors cautious about emerging markets.
- Concerns over a slowdown in global economic growth have further fueled the risk-off sentiment.
3. Weak Q3 FY25 Corporate Earnings Weigh on Market Sentiment
- Lackluster earnings growth has failed to justify the high valuations of Indian equities.
- Several companies, particularly in the mid and small-cap segments, have reported weaker-than-expected results.
- Downgrades in forward earnings estimates have significantly outpaced upgrades, leading to profit-booking by institutional investors.
4. Overvaluation Concerns Trigger Profit Booking
- India’s stock market has been one of the most expensive globally, with valuation premiums over peers like China and South Korea.
- FPI ownership in Nifty 50 stocks has dropped to a 12-year low of 24.3%, indicating that foreign investors are reducing exposure to overvalued Indian equities.
How Domestic Investors Are Absorbing the Selloff
Despite the heavy FPI withdrawals, Domestic Institutional Investors (DIIs), including mutual funds and insurance firms, have partially offset the selling pressure by continuing to deploy capital into equities. However, their efforts have not been enough to completely stabilize the market.
- Retail and High-Net-Worth Individuals (HNIs) are also reducing exposure, adding to market weakness.
- DII inflows have not been sufficient to fully counterbalance the FPI-led outflows, leading to a broad-based market decline.
FPI Strategy Shift: Moving Funds to China and U.S. Markets
Reports indicate that foreign investors are redirecting funds to Chinese stocks, particularly after Beijing introduced stimulus measures to support its economy.
- The emergence of new technology companies in China, such as AI startup DeepSeek, has boosted investor sentiment in Chinese equities.
- U.S. markets remain an attractive destination due to stable economic growth and resilient corporate earnings.
Market Outlook: Will the Selloff Continue?
Market analysts expect continued volatility as FPIs remain cautious amid macroeconomic uncertainties.
Expert Opinions on Market Trends:
Vipul Bhowar, Senior Director, Listed Investments, Waterfield Advisors:
“The elevated valuations of Indian equities, coupled with concerns about corporate earnings growth, have led to sustained foreign portfolio investment (FPI) outflows. The risk appetite among global investors remains low due to uncertainties in global economic recovery.”
- Analysts suggest that if U.S. bond yields remain high and global trade conditions worsen, the Indian markets could see further selling pressure.
- However, a potential recovery in corporate earnings and policy support from the government could help restore investor confidence in the coming months.
Highlighting Triggers to Watch
- RBI’s monetary policy decisions and their impact on liquidity
- U.S. Fed’s interest rate trajectory and bond market movement
- India’s upcoming GDP growth data and corporate earnings
- FPI investment trends in competing emerging markets
Indian Markets Face Headwinds, But Long-Term Growth Story Remains Intact
While the FPI exodus has triggered significant corrections in Indian stocks, long-term investors still believe in India’s structural growth story. The focus now shifts to domestic economic fundamentals, corporate earnings recovery, and global monetary policy developments.
With elevated market volatility, investors are advised to adopt a cautious approach while keeping an eye on potential opportunities arising from market corrections.
