Foreign institutional investors (FIIs) have pulled out over Rs2 lakh crore from Indian secondary markets in 2025 so far, already eclipsing all previous annual outflow records with three months still left in the year.
This comes on top of Rs 1.21 lakh crore of withdrawals in 2024, reflecting sustained foreign pessimism despite repeated government efforts to revive sentiment. Interestingly, while FIIs have been relentless sellers in listed equities, they remain active in the primary market infusing over Rs 44,180 crore in 2025 so far after a record Rs 1.22 lakh crore in 2024.
The exodus has been driven by slowing earnings growth, stretched valuations, rupee weakness, geopolitical tensions, and more attractive opportunities overseas. Pressure escalated after Sebi’s 2024 decision to classify certain FPIs as “high-risk.” Funds with over 50 percent exposure to a single Indian corporate group or holdings above Rs 25,000 crore were mandated to disclose ultimate beneficiaries by September 9, 2024, or face license cancellation. Many chose to pare exposure in late 2024, sparking volatility.
Domestic institutional investors (DIIs) have cushioned the blow, buying more than Rs 5.3 lakh crore of equities so far in 2025, after Rs5.27 lakh crore in 2024. Analysts, however, caution that DIIs cannot indefinitely offset sustained foreign withdrawals, particularly with the rupee under pressure.
Policy support, including tax cuts, monetary easing, and GST 2.0, has so far failed to trigger a turnaround in global flows. “The trigger for FPI return will be more attractive valuations and stronger earnings. Until then, sentiment will remain cautious,” said Indraneel Sengupta, Global Macro Research Analyst, Ianalysis.
The selloff has left Indian benchmarks lagging behind global peers. In US dollar terms, the Sensex and Nifty are up just 0.4 percent and 1 percent in 2025. By comparison, the S&P500 has surged 14 percent, the Dow Jones 9 percent, the FTSE100 24 percent, Germany’s DAX 37 percent, and France’s CAC40 22 percent. Asian markets have also delivered robust gains, with Shanghai up 18 percent, Hang Seng 34 percent, Nikkei 20 percent, Kospi 57 percent, and Taiwan 22 percent.
Experts warn that unless India strengthens its growth narrative, outflows could intensify further. Trade frictions, tariff uncertainties, and the upcoming Q3 FY25 earnings season will be closely watched for sectoral allocation cues.
Meanwhile, steady inflows from pension funds, insurance companies, EPFO, and ELSS-linked products are expected to sustain DII demand. For retail investors, analysts recommend patience. “Volatility will persist. Stick to SIPs and STPs to ride out corrections, which may deepen if global or geopolitical headwinds worsen,” Sengupta advised.
Not all commentary is negative. A recent note from Antique Broking argues that FPI selling may be nearing exhaustion, with FPI equity flow as a share of market cap at -1 standard deviation. It highlights that Indian equities continue to trade at a fair premium relative to emerging and developed markets, underpinned by resilient earnings and strong macro fundamentals.
Any resolution of US tariff disputes could also redirect flows to India, given that the US accounts for nearly 40 percent of FPI assets under custody. Sectors with high FPI ownership such as real estate, telecom, financial services, and healthcare, along with under-owned sectors like capital goods and power utilities, may stand to benefit, Antique said.