Foreign Funds Retreat from Indian Equities

After a positive run, foreign portfolio investors are selling off Indian shares, influenced by high valuations and cheaper options elsewhere. Here’s a breakdown of the shift.

Recent Outflows

According to data from the NSDL, Foreign Portfolio Investors (FPIs) have withdrawn ₹555 crore from Indian equities up to July 11, marking a downturn after three consecutive months of inflows. The negative inflow for 2025 currently totals ₹1,00,443 crore, reflecting sustained selling pressure, especially during January and February.

Expert Insights

VK Vijayakumar, Chief Investment Strategist at Geojit Financial Services, observed, “There are signs of FPI inflows weakening. After three months of positive inflows, FPI has turned negative, though marginally, so far in July.”

He linked the recent trend to earlier selloffs, noting, “The first three months of this year, FPI inflows were negative and this trend was reversed in the next three months.”

Primary vs. Secondary Markets

Despite the selling activity in secondary markets, FPIs have maintained activity in the primary market, remaining consistent buyers in initial offerings.

Reasons for the Shift

Vijayakumar explained the July outflows, “FPI selling in July after three months of buying can be attributed to the recovery in the market from the March lows and the consequent elevated valuations. Since other markets are cheaper relative to India, FIIs may again sell and move money to cheaper markets as a short-term strategy.”

Investment analysts at Kotak Institutional Equities also reported a similar trend of foreign investor caution in early July (Livemint, 2025).

Underperformance

In the first half of 2025, the Indian market’s performance lagged behind many emerging markets, including the MSCI EM Index. This relative underperformance is contributing to the outflow.