FPI Flows Witness Volatility Despite Market Recovery
Foreign portfolio investors (FPIs) have exhibited extreme unpredictability in Indian equities throughout 2025, with significant outflows in the initial months of the year, followed by renewed interest in March. Despite India’s economic resilience, global factors such as trade tensions, tariff policies, and interest rate fluctuations have kept market sentiment fragile.
The benchmark Nifty index rebounded by nearly 6% in March, supported by a surge in late-month inflows. However, cumulative foreign outflows in 2025 remain substantial, highlighting the cautious approach adopted by global investors. FPIs have pulled out a staggering ₹1.16 lakh crore from Indian equities year-to-date (YTD), marking one of the most volatile starts to a financial year in recent history.
While the sudden return of FPIs as buyers in the last week of March helped stabilize market trends, concerns over US President Donald Trump’s reciprocal tariffs policy, set to be enacted in April, continue to influence investor confidence. With geopolitical tensions and macroeconomic indicators dictating market movements, analysts remain cautious about the future trajectory of foreign investments in India.
Heavy Selling in Early 2025, Followed by a Late March Rebound
FPIs began 2025 on a decidedly bearish note, triggering an equity selloff in January and February that led to steep declines in both benchmark and midcap indices. In January alone, FPIs dumped ₹78,027 crore worth of equities, marking the highest monthly outflow in recent years. The bearish trend continued in February, with another ₹34,574 crore in foreign capital exiting Indian stocks.
These outflows resulted in significant corrections across broader market indices, with the Nifty Midcap index plunging over 10% YTD, reflecting heightened investor caution toward smaller stocks. While December 2024 had recorded a net FPI inflow of ₹15,446 crore, that momentum reversed sharply as foreign investors reassessed risks associated with India’s elevated valuations and external global uncertainties.
However, March witnessed a reversal in trend, with ₹31,000 crore of net FPI inflows during the last six trading sessions, leading to a 6% surge in the Nifty. Market analysts attribute this shift to several factors, including:
Attractive Valuations: After a nearly 16% correction from September 2024 peaks, Indian equities became more appealing to foreign investors.
Rupee Appreciation: A reversal in the currency’s downward momentum encouraged fresh inflows from global funds.
Stronger Macroeconomic Indicators: Positive economic data, including GDP growth, IIP (Index of Industrial Production), and moderated inflation levels, helped restore investor confidence.
Despite this temporary relief, FPIs still ended March as net sellers, withdrawing ₹3,973 crore during the month. The recent buying spree partially offset heavy outflows but did not entirely reverse the trend observed earlier in the year.
Debt Market Inflows Offer Some Stability Amidst Equity Selloff
While FPIs have been aggressive sellers in the equity market, their stance on India’s debt market has remained more favorable. So far in 2025, FPIs have infused ₹779 crore into Indian debt securities, providing a cushion to overall market sentiment.
Fixed-income investments have attracted foreign interest due to:
Stable returns amid global volatility
Attractive Indian bond yields compared to developed markets
India’s improving fiscal discipline and monetary policy outlook
However, despite these inflows, the total foreign outflows across equities, debt, hybrid, and Debt-VRR (Voluntary Retention Route) segments stood at ₹68,531 crore YTD, underscoring persistent foreign investor skepticism.
US Tariff Policies and Global Uncertainties Keep Markets on Edge
One of the biggest risks influencing FPI sentiment is US President Donald Trump’s upcoming tariff policy announcement on April 2nd. Trump has indicated plans to introduce reciprocal tariffs on multiple countries, potentially disrupting global trade flows.
Previously, investors speculated that only 10-15 nations would be impacted. However, Trump’s latest statements suggest a more broad-based tariff strategy targeting all major economies, including India.
These policy shifts have far-reaching implications for Indian markets:
Export-oriented sectors like IT, pharmaceuticals, and textiles could face headwinds if new tariffs affect trade with the US.
Market volatility is expected to rise, as investors await clarity on the final tariff structure and its economic impact.
The rupee may experience renewed pressure, impacting capital flows and currency stability.
Given these risks, FPI inflows are likely to remain inconsistent, with a wait-and-watch approach prevailing among global investors.
Will FPIs Return to India? Market Analysts Offer Mixed Views
Despite recent FPI inflows, market experts remain divided on the future trajectory of foreign investments in Indian equities. Some believe India’s long-term growth story remains intact, while others caution that global uncertainties could trigger further outflows.
Himanshu Kohli, Co-founder of Client Associates, suggests that FPIs have become more constructive on India but expects short-term volatility to persist. He believes that if India maintains macroeconomic stability and global risks remain under control, foreign investors could gradually increase allocations toward Indian equities.
On the other hand, Apurva Sheth, Head of Market Perspectives & Research at SAMCO Securities, emphasizes that FPI flows are return-driven, not sentiment-driven. He notes that foreign investors seek higher returns relative to global alternatives, and when Indian valuations are perceived as stretched, they reallocate funds elsewhere—such as US bond markets offering higher yields.
Sheth believes that FPIs will return aggressively only when risk-reward dynamics favor Indian equities, particularly if:
Valuations become more attractive after further corrections.
US interest rate hikes slow down, reducing capital outflows from emerging markets.
India’s economic growth remains robust, outperforming other emerging markets.
For now, India’s equity markets remain highly sensitive to global trade developments, making FPI trends unpredictable.
India’s Equity Markets Remain at a Crossroads
FPIs have withdrawn ₹1.16 lakh crore from Indian equities YTD in 2025, marking a volatile start to the financial year.
January and February saw heavy selling, with net outflows of ₹78,027 crore and ₹34,574 crore, respectively.
Late March saw ₹31,000 crore of inflows, helping the Nifty recover 6%.
Debt market inflows remained positive, with FPIs investing ₹779 crore in fixed-income instruments.
US President Trump’s upcoming tariff announcement on April 2nd remains a major risk factor influencing global investor sentiment.
While FPIs returned as buyers in late March, long-term investment trends remain uncertain, with analysts adopting a cautious outlook.
As global markets brace for potential trade disruptions, Indian equities could experience further volatility in the coming months. The interplay between valuation attractiveness, global liquidity trends, and trade policies will determine the future course of FPI flows in India.
