Foreign investors’ confidence in the Indian equity market seems to be wavering. In just the first week of September 2025, Foreign Portfolio Investors (FPIs) pulled out a massive Rs 12,257 crore. This figure is not only worrying but also part of a larger trend that has been continuing since the start of 2025.
But what are the reasons behind this relentless selling by FPIs? Let’s understand.
What’s Happening?
The selling spree by Foreign Portfolio Investors (FPIs) in Indian equities shows no signs of slowing. In just the first week of September 2025, FPIs withdrew Rs 12,257 crore, taking the total outflow so far this year to Rs 1.43 lakh crore. In August alone, FPIs sold shares worth Rs 34,993 crore, while in July the figure stood at Rs 17,741 crore.
This trend has also continued into FY26. During April–June 2025, capital inflows fell by more than 40% compared to the same period last year, despite GDP growth standing at 7.8% in that quarter.
Looking at the past five years, India witnessed strong inflows of Rs 1,70,262 crore in 2020 and Rs 1,71,107 crore in 2023. However, heavy outflows of Rs 1,21,439 crore in 2022 and a marginal inflow of just Rs 427 crore in 2024 highlight the uncertainty among foreign investors.
Global Factors and Dollar Pressure
One of the major reasons behind the exit of foreign investors from Indian markets is global factors. Firstly, a strong US dollar weakens the rupee, prompting investors to shift their preference from India towards US assets.
Secondly, renewed fears around US tariffs are adding to global uncertainty. In such a volatile trade environment, foreign capital inflows into emerging markets tend to reduce.
Thirdly, ongoing geopolitical tensions are fuelling a ‘risk-off’ sentiment among investors. This means they are avoiding risk and moving towards safer markets.
Domestic Challenges and Valuation Concerns
Domestic factors are also contributing to the FPI outflow. Weak earnings during the June quarter dented investor sentiment, leading them to seek safer alternatives.
Additionally, according to The Hindu, V.K. Vijayakumar, Chief Investment Strategist at Geojit Investments, says, continuous large-scale buying by DIIs is helping FPIs encash at high valuations and redirect funds towards cheaper markets like China, Hong Kong, and South Korea.
What Does This Mean for Investors?
In August 2025, FPIs showed mixed activity across Indian markets. There were heavy sell-offs in IT (Rs 112.9 billion), oil & gas (Rs 61 billion), and financials (Rs 232.9 billion), which raised concerns. On the other hand, foreign investments flowed into the telecom sector (Rs 57.7 billion) following mobile tariff hikes that boosted income expectations. Positive flows were also recorded in construction (Rs 13.6 billion), auto (Rs 18 billion), capital goods (Rs 19 billion), and services (Rs 23.5 billion).
According to Reuters, analysts believe India’s strong macroeconomic fundamentals and a boost in consumption due to GST rate cuts could gradually ease selling pressure.
What’s Next?
The direction of the Indian market in the coming months will largely depend on global data and domestic macro indicators. As reported by The Times of India, inflation data for August (due on 12th September), along with key US economic numbers such as consumer inflation and initial jobless claims, will influence FPI flows. Moreover, the US Federal Reserve’s policy meeting on 16–17 September, crude oil prices, and the rupee-dollar trend will also play crucial roles.
While recent selling has weighed on the market, some strategists remain optimistic. According to The Economic Times, Geojit Investments’ V.K. Vijayakumar believes GST reforms and robust GDP growth could drive earnings growth in FY26 and FY27, potentially attracting FPIs back to India and triggering a market rally.
*The companies mentioned in the article are for information purposes only. This is not investment advice.
*Disclaimer: Teji Mandi Disclaimer
