Foreign Investors Pull Back: FPIs Exit Indian Equities for Second Straight Week
FPIs Sell Indian Stocks for 2nd Week in a Row — Should You Worry?
Foreign investors have once again turned net sellers of Indian equities, pulling out funds for the second consecutive week. While the headline numbers look concerning, domestic sentiment has so far remained resilient. But the persistent outflows highlight a shift in global risk appetite and signal that caution may be warranted in the months ahead.
Who Are FPIs and Why Do They Matter?
Foreign Portfolio Investors (FPIs) are large overseas funds, global banks, pension funds, and asset managers who buy and sell shares in Indian stock markets. They are not long-term strategic owners like Foreign Direct Investors (FDI) but move money based on short- to medium-term opportunities.
Their influence is substantial — FPIs own between 16% and 20% of India’s total market capitalisation. Their buying brings foreign currency inflows, strengthens the rupee, and lifts market valuations. Conversely, sustained selling can weigh on both the stock market and the currency.
When FPIs act in unison, their trades can swing daily market volumes and even drive sentiment for retail and domestic institutional investors (DIIs).
What’s Happening in August 2025?
In the week ending August 1, FPIs sold ₹17,000 crore worth of Indian equities. This marks the second straight week of outflows, adding to what is already a heavy year for foreign selling.
So far in 2025, over ₹1.03 lakh crore ($11.8 billion) has left Indian equities. More telling is the fact that FPIs sold stocks on all five trading days last week — a sign of consistent bearish positioning rather than a one-off rebalancing.
Why Are FPIs Selling? Four Key Drivers
1. Trump’s 50% Tariff on Indian Exports
The reimposition of Donald Trump’s protectionist trade stance has unsettled global markets. His 50% tariff on Indian exports comes alongside criticism of India’s continued purchase of Russian oil.
For sectors like textiles, auto components, gems and jewellery, and chemicals — which rely heavily on US demand — such tariffs threaten revenue and margins. For FPIs, this adds a new layer of trade friction risk, reducing the near-term appeal of Indian exporters.
2. US Dollar Strength & Higher US Interest Rates
The US dollar index is holding firm around the 100 mark, while US Treasury yields remain elevated. For global investors, this means they can park funds in US bonds with attractive, risk-free returns.
At the same time, the Indian rupee has weakened to ₹87.20 per dollar, making Indian assets less lucrative. Even if stock prices rise in rupee terms, currency conversion erodes dollar returns. This currency headwind is often a decisive factor for foreign fund managers.
3. India’s Expensive Stock Market
Indian equities have commanded premium valuations for several years. While this reflects strong domestic growth and corporate earnings, it also makes the market more vulnerable during periods of uncertainty.
The Nifty 50’s price-to-earnings (P/E) ratio is above its historical average and well above the multiples in other emerging markets like China or Brazil. In a global rotation, relatively cheaper markets tend to attract more capital, drawing money away from India.
4. Mixed Corporate Earnings and Growth Concerns
The Q1 FY26 earnings season has delivered a mixed bag. While some sectors like banking and telecom have performed well, industrial growth has slowed, and several companies have reported results below market expectations. This earnings uncertainty reduces the case for aggressive FPI buying.
Sector-Wise FPI Trends
The latest data shows a sharp divergence in sectoral flows:
Heavy Selling:
• IT: ₹30,600 crore (hit by slower US client spending and delayed technology budgets)
• FMCG: ₹18,178 crore (margin pressures, weak rural demand recovery)
• Power: ₹15,422 crore (profit booking after strong rallies)
• Auto & Auto Components: ₹11,308 crore (tariff fears, slowing exports)
Selective Buying:
• Telecom: ₹26,685 crore (5G rollout, digital infrastructure growth)
• Financial Services: ₹13,717 crore (credit growth, strong balance sheets)
The selling appears concentrated in sectors exposed to export risk and those trading at rich valuations, while flows remain positive in domestic demand-driven industries.
Looking Back: How Does 2025 Compare?
The current year’s trend is in sharp contrast to recent history:
• 2023: FPIs invested ₹1.71 lakh crore, fuelled by a global risk-on environment and India’s growth narrative.
• 2024: Net inflow of just ₹427 crore — effectively flat, as cautious sentiment emerged late in the year.
• 2025: Big reversal, with more than ₹1 lakh crore leaving in just seven months.
The swings underline how quickly FPI sentiment can change based on geopolitical developments, US monetary policy, and risk-adjusted returns in other markets.
Is the Market Panicking? Not Yet.
Interestingly, despite heavy foreign selling, Indian benchmark indices have not seen a proportionate collapse. This resilience is largely due to strong domestic institutional inflows and steady retail investor participation through SIPs (Systematic Investment Plans).
DIIs have been net buyers in recent weeks, offsetting much of the FPI outflow impact. The deepening domestic investor base is providing a cushion against external shocks — a major difference from earlier decades when FPI withdrawals could spark sharp corrections.
Conclusion: The Road Ahead
While India’s long-term growth story remains intact, near-term volatility cannot be ruled out. Key factors to watch include:
• US policy direction on trade and interest rates
• Movement of the rupee against the dollar
• Domestic corporate earnings in Q2 FY26
• Global commodity prices, especially oil
If US interest rates remain high and the dollar stays strong, FPI flows into India may remain subdued. However, a policy shift or softer economic data from the US could prompt a reversal — history shows that FPI sentiment can flip quickly.
For now, the market is absorbing the selling without major panic. But if outflows persist for several more weeks, the pressure on both equities and the rupee could intensify, testing the market’s resilience.
:
The image added is for representation purposes only
