In Feb 2025, Foreign Portfolio Investors (FPIs) withdrew ₹41,748 crore from Indian stock markets, taking the net selling to the fifth consecutive month. The ongoing outflow has been fueled by rising global trade tensions and competitive U.S. bond yields. In the final trading session of Feb, FPIs sold Indian stocks worth ₹11,639 crore, marking the largest single-day sell-off in 2025. It surpassed the previous single-day high of ₹8,132 crore in Jan.
As of early March, FPIs have withdrawn a total ₹1,23,652 crore from Indian equities in 2025, thereby being net sellers in 43 out of 46 trading sessions this year. On average, this translates to an outflow of ₹2,688 crore a day. The selling pressure was especially strong in February, during which FPIs were net sellers in 18 out of 20 trading sessions. In January, they sold ₹81,904 crore, with 25 out of 26 trading sessions witnessing net outflows.
Despite the ongoing outflows, domestic institutional investors (DIIs) have still been able to absorb the selling pressure, though this has not been enough to calm the markets. Market analysts have noted that, besides FPIs, family offices, high-net-worth individuals (HNIs), and retail investors are also selling off in an attempt to protect their margins. Thus, DIIs are being left to bear the brunt of the sell-off.
The relentless selling by FPIs has taken a big toll on Indian equities, and the Nifty 50 and Sensex declined by 6% in February. This was the largest monthly decline since October 2024 and implied that both indices saw five consecutive months of negative returns, declining 16% from their respective peaks. The broader market has been hit even harder, and the Nifty Midcap 100 and Nifty Small-cap 100 indices have declined 25% from their all-time peaks.
This sell-off also weighed on the Indian rupee, which declined by nearly 0.9% in February. There have been several factors that have led to this prolonged market decline, including global trade worries, weak earnings in the December quarter, high valuations, and a slowdown in India's economic growth. Together, these factors have led to rising risk aversion among investors, which has further dampened market sentiment.
Decline in FPI Holdings in Large-Cap Stocks
Despite the heavy selling, FPIs still hold Indian equities of approximately $800 billion. BNP Paribas Exane, which is a European equity research firm, states that the continued withdrawal of FPIs means that the pain in the market can persist if the selling does not stop.
The latest data from the National Stock Exchange (NSE) reveals that FPI ownership of Nifty 50 and NSE-listed companies have reached multi-year lows. FPI ownership of Nifty 50 companies fell 30 basis points to 17.4%, a 13-year low, and that of the broader Nifty 500 index by 15 basis points to 24.3%. This reveals that the selling is concentrated in large-cap stocks. Even as FPIs are selling Indian stocks, reports indicate they are redirecting their investments to Chinese markets. Investors are betting big on China's economic recovery, spurred by new policy measures unveiled by Beijing. Additionally, the rise of Chinese AI startup DeepSeek, which is promoting itself as a free substitute for ChatGPT, has stoked investor demand for technology stocks, particularly those listed in Hong Kong.
Volatility to Continue as FPIs Remain Cautious
Vipul Bhowar, Senior Director of Listed Investments at Waterfield Advisors, blames Indian equities' elevated valuations and fears of slowdown in growth in corporate earnings for the continuing outflow of FPIs. According to Bhowar, third quarter earnings of financial year 2025 were muted, and earnings revisions have been largely negative, especially for stocks that are not part of the Nifty 50 universe.
This has been exacerbated by falling commodity prices and reduced consumer spending, which have hurt corporate profitability and made Indian stocks less appealing to foreign investors. Furthermore, rising U.S. bond yields, a stronger U.S. dollar, and global economic uncertainties have shifted investor attention to U.S. assets, which has also contributed to the outflows from Indian markets.
As a result, FPIs' investments in Indian equities have dropped to multi-year lows, suggesting that investors are waiting for clear signs of recovery before returning to the market. Until then, market analysts believe that volatility will continue to rock Indian markets, driven by both global and domestic issues. In brief, the persistent selling by FPIs, coupled with broader market concerns, has put enormous pressure on the Indian stock market in 2025. While domestic investors have stepped in to absorb some of the selling, they have been unable to halt the broader market decline. With global trade tensions, weak earnings, high valuations, and a slowing economy weighing on sentiment, it is uncertain when the market will change direction. Until then, volatility is likely to persist, keeping investors on edge.
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Source: livemint.com
