Foreign portfolio investors (FPIs) withdrew $2.7 billion from Indian equities in September, marking the third consecutive month of selling. This trend places 2025 on track for a record year of foreign withdrawals, as indicated by data from the National Securities Depository.
Thus far in 2025, foreign investors have offloaded a total of $17.6 billion, making it the second-highest total for the January–September period on record. The only larger nine-month exodus occurred in 2022 when FPIs sold $22.3 billion amid the Russia-Ukraine war, aggressive global rate hikes, and a rising U.S. dollar. However, foreign inflows resumed late in 2022 after markets began anticipating U.S. rate cuts, which reduced the full-year outflows to $16.5 billion.
This year’s outflow has already surpassed last year’s total, setting the stage for 2025 to potentially become the worst year on record for foreign withdrawals. Ajit Banerjee, president and chief investment officer at Shriram Life Insurance, noted, “The Nifty’s one-year return is already at –4%. Add in geopolitical tensions, the tariff shock from the U.S., H-1B visa fee hike, and lackluster earnings, and it’s only logical for FPIs to shift capital elsewhere.”
Recent policy changes, including steep 50% tariffs on domestic goods, could significantly affect over half of India’s $87 billion in exports to the U.S. This situation might reduce GDP growth by 60–80 basis points if maintained for a year, according to multiple brokerages. Additionally, increased H-1B visa fees have strained trade relations and negatively impacted India’s IT sector, traditionally a favorite among FPIs. The IT sector has experienced the heaviest FPI selling this year, amounting to $7.2 billion, followed by sectors such as power, consumer goods, and financial services.
Banerjee highlighted a “tactical rotation” of FPI investments into China and other Asian countries, driven by stronger earnings, more attractive valuations, and comparatively lower tariffs.
The ongoing sell-off has left India’s benchmark indices, the Nifty 50 and BSE Sensex, trailing behind regional counterparts, with gains of just 4.1% and 2.7%, respectively, compared to a 22% increase in Asian markets and a 24.6% rise in emerging markets.
Nevertheless, analysts suggest there could be grounds for optimism moving forward. Indian equities are now trading at more reasonable valuations, and potential consumption tax cuts combined with pro-growth monetary policies could bolster earnings in the latter half of fiscal 2026, possibly enticing FPIs back to Indian markets.
Published on October 1, 2025.
