FPI outflows cross $11 billion as investors chase Europe, China equities

The selloff by foreign portfolio investors (FPIs) has crossed $11.23 billion in just 32 trading sessions since the year began with the benchmark Nifty coming off 3.74% YTD. The only positive streak amid the carnage on the Street is that for the first time in over four months, the relentless selling spree by US-based funds in Indian equities is cooling off.

While this might seem like the turning point the Indian markets have been desperately waiting for, the reality is more complicated. The fire-sale has merely shifted to new battlegrounds, with fresh fund outflows emerging from Ireland, Luxembourg, Japan, and the UK. Ireland alone saw $103 million in outflows this week, followed by Luxembourg with $88 million, Japan with $46 million, and the UK, where redemptions have been gradually building since November, now totalling a staggering $435 million. Unlike the ETF-driven flows from the US, these redemptions are coming from active funds, meaning India’s biggest and most widely held stocks could face even more pronounced corrections in the coming weeks.

Meanwhile, as foreign investors exit India, they are rapidly shifting their focus elsewhere. Europe, in particular, has emerged as the hot favourite among global investors, attracting its highest inflows since January 2023. The Euro Stoxx 50 index has roared back to levels last seen in the year 2000, triggering a wave of fresh capital pouring into the continent. In just a week, according Elara Capital, European equity funds saw a staggering $2.5 billion in inflows, led by Germany with $930 million, Switzerland with $824 million, France with $658 million, and the Netherlands with $344 million.

Compounding India’s woes is that China is making a comeback. For months, China had been reeling from a sustained outflow of foreign capital, much like India. “But in the past two weeks, that trend has sharply reversed. We have seen marginal flows in China,” points out Sunil Jain, who tracks global flows at Elara Capital. This week alone, China saw an inflow of $573 million — the highest since October 2024. Global fund managers appear to be gradually rotating capital away from India and into China, lured by cheaper valuations and improving sentiment around Beijing’s economic policies. Alongside the resurgence in Chinese inflows, there is also a revival in commodity-based funds. The emerging market commodity and materials sector saw its largest inflow since August 2023, totalling $92 million, hinting at a broader shift in investor preferences toward hard assets.

For Indian investors, this shifting tide in global capital flows presents a mixed picture. The halt in US-based outflows offers a much-needed reprieve, but it does not mean that foreign capital is returning to India. If anything, the outflows are continuing unabated, just from different sources. Dedicated India-focused funds, which have borne the brunt of the selling pressure this year, saw another $238 million in redemptions this week alone. The sustained outflows suggest that foreign investors remain wary of India’s high valuations, political uncertainties, and macroeconomic risks.

While domestic SIP flows — averaging nearly $3 billion (₹26,000 crore) a month — have helped absorb some of the selling, they are acting more as a cushion rather than a driver of market gains. Retail liquidity could also take a hit in the coming months as investors get drawn into the IPO frenzy, further straining secondary market participation. At the same time, macro pressures continue to mount. The rupee has weakened by 2.6% since November, despite the Reserve Bank of India spending $77 billion in forex reserves to prevent a sharper depreciation. The US Federal Reserve’s hawkish stance has dampened hopes of aggressive rate cuts, reducing the India-US bond yield differential to new lows, making US assets more attractive in comparison.

While the halt in US outflows might offer a temporary breather, India is far from out of the woods. With selling pressure shifting to Europe and Asia, and global investors favouring markets such as China and the Eurozone, Indian equities remain on shaky ground. Unless foreign flows stabilise and domestic liquidity steps in aggressively, this relief could be nothing more than a short-lived mirage.