Foreign portfolio investors (FPI) have unleashed their fiercest selloff in a decade and the first in the history of India’s stock markets. These investors have pulled out a staggering ₹1.25 lakh crore from dumping Indian equities in just eight months of the current calendar year.. The exodus has already surpassed the ₹1.21 lakh crore net outflows seen in the whole of CY22, making this year the worst. In fact, with the deteriorating outlook on the impact of 50% tariffs on the Indian economy, it’s quite possible that foreign investors will continue to rush for the exit through the year, unless there is a thaw in the strained US-India trade relationship.

The ferocity of the FPI retreat is stark: in five of the eight months thus far, investors yanked out of cumulative ₹1.63 lakh crore, more than wiping out the brief optimism of April-June. The three consecutive months of respite (April, May, and June) saw modes inflows of ₹38,673 crore, only to be followed by a brutal reversal. The months of July and August alone saw an outflow of ₹46,646 crore, echoing the bloodbath seen at the start of the year’s opening quarter when January to March, FPI sales hit a record ₹1.17 lakh crore.

Interestingly, despite the relentless foreign exodus, the benchmark indices have been surprisingly resilient. Thus far in 2025, both the Sensex and Nifty are up nearly 3%, largely cushioned by robust domestic institutional and retail buying. Yet, the momentum has faded by the end of August the Nifty stagnated at 24501 and the Sensex at 80891, reflecting the underlying bearish sentiment.

In fact, the only bright spot during the decade is CY23, when the benchmarks surged in the 18-20% range, delivering one of the strongest double-digit returns in years. But the follow-up year has been tepid with 2024 ending with single-digit gains and 2023 struggling to stay in the green despite aggressive local buying support.

One striking feature of this cycle is the reset in valuations. From the frothy peaks of 33x and 38x trailing 12-month price to earnings multiples during CY20, both indices have settled in a muted 21-22x range over the past four years. This consolidation band suggests that multiples have caught up with dismal earnings growth as foreign investors remain unconvinced and instead opting for the safety of the 4% yields that T-bills are offering, rather than chase risk in a turbulent macroeconomic landscape.

Given the velocity of money going out from the Indian markets, it’s quite possible that the year might be worst one in terms of net outflows considering that the outlook for Indian equities is looking far from bullish. For instance, leading foreign bank which also has a securities business, HSBC, had earlier this month downgraded the outlook on Indian equities from overweight to neutral, besides slashing Nifty 50 earnings growth forecast from the previous 15% to 5%.