The outflow of Foreign Portfolio Investors (FPIs) from Indian equity markets continued in January 2025, with net outflows reaching ₹78,027 crore, as per data from depositories. Apart from one session, FPIs were net sellers throughout the month, driven by the Trump trade effect causing capital to move away from emerging markets.
Despite this ongoing trend, Indian policymakers remain calm, viewing the outflows as a phase of profit-booking rather than a cause for concern. Official sources emphasized that Indian fundamentals are strong, and most FPIs are exiting after making substantial profits. They reassured that the departure of FPIs should not be seen as entirely negative, as new investors are also entering the market.
The surge in the dollar and increasing US bond yields, influenced by Donald Trump’s return to the White House, have made US assets more attractive, leading to the capital flight from Indian equities. In December 2024, FPIs were net buyers of ₹15,448 crore, but in October and November, they had offloaded ₹94,017 crore and ₹21,612 crore, respectively.
Chief Investment Strategist at Geojit Financial Services, VK Vijayakumar, stated that the primary reason for the FPI outflow is the superior economic performance and corporate earnings in the US, surpassing India’s recent growth and earnings trajectory. He mentioned that the Budget has boosted sentiment, and with anticipated growth and earnings recovery, the trend could reverse. However, the uncertainty injected by Trump’s tariff policies has added to global economic uncertainties.
Besides global factors, domestic issues have also played a role in the outflows. Himanshu Srivastava, Associate Director – Manager Research at Morningstar India, highlighted that the continuous depreciation of the rupee is pressuring foreign investors to withdraw funds. Additionally, the high valuation of Indian equities, despite recent corrections, has made investors cautious. Macroeconomic challenges, an unpredictable earnings season, and Trump’s policies have further fueled caution among FPIs.
Looking ahead, analysts suggest that a turnaround may be on the horizon. If growth stabilizes and earnings improve, FPIs might consider re-entering Indian markets, especially as global economic conditions evolve. The government maintains that while FPIs are departing, they are not fleeing, and they are likely to return when market conditions align with their investment strategy.
