CY25 brings 5-yr cumulative net FPI inflows to zero

By most domestic measures, 2025 should have been a supportive year for Indian equities. GDP growth remains strong, inflation has moderated, the Reserve Bank of India has slashed the repo rate by 125 bps for CY2025, consumption is showing signs of revival aided by GST 2.0, and corporate earnings in Q2 Y26 have held up better than expected. Yet, foreign portfolio investors (FPIs) have voted decisively with their feet.

Thus far in calendar year 2025, FPIs have sold ₹1.58 lakh crore worth of Indian equities, making it one of the weakest years for foreign flows since 2021. This is not just a 2025 phenomenon. Over the past five calendar years since 2021, FPI net equity flows into India have effectively been negative, with cumulative net outflows of ₹81,879 crore. 

A brief reversal came in 2023, when FPIs brought in ₹1.71 lakh crore. The other time India saw negative flows was in 2022, when FPIs sold ₹1.21 lakh crore, due to the Russia-Ukraine war, aggressive global rate hikes, and a surging U.S. dollar. The recovery proved to be short-lived, as net inflows in 2024 were only ₹427 crore, with 2025 once again more than unwinding those gains.

Yet, despite the massive FPI outflow, both Sensex and Nifty50 performed reasonably well, rising 7.49% and 8.49% respectively. This suggests that there is a divergence in the relationship between market performance and foreign cash flows, as in 2024, both benchmark indices rose above 8% each, yet recorded flat FPI inflows. 

Still, the irony is hard to miss - FPIs are exiting even as India’s market fundamentals improve.

“The last few years clearly show that even though India offers a strong, stable long-term investment theme, but foreign portfolio investors have been weighing on the Indian market in the medium to short term,” says Kranthi Bathini, Director of Equity Strategy, WealthMills Securities. 

What really drove the sell-off

One of the biggest drags on FPI sentiment in 2025 has been narrative volatility rather than domestic weakness. “There has been a quick shift between ‘sell China, buy India’ and ‘sell India’ narratives across emerging markets,” Bathini says. “Earlier, these narratives used to be stable. Today, with global ETFs and hot money, the narrative changes very fast.”

In an environment marked by geopolitical uncertainty, shifting US trade policy, and intermittent tariff threats, India, despite strong fundamentals, has been caught in the crossfire. “That is one of the reasons we are seeing an exodus of funds from Indian markets—despite clear earnings visibility and India being one of the fastest-growing economies globally,” Bathini adds.

Another reason for the relentless outflows is that India has largely been a funding market for AI in Asia this year, which means investors sold Indian equities to buy Korean or Taiwanese stocks. As per an HSBC report, between September 2024 and November 2025, nearly $28 billion flowed out of India, and foreign ownership of Indian equities is now below 17% of the market, the lowest level in 14 years.

At the same time, the rupee hitting new lows in the past few days has compounded the FPI discomfort. The rupee has emerged as the worst performer in Asia, declining 6% against the dollar on a year-to-date basis. “Yes, the rupee has weakened partly because of sustained FPI outflows,” Bathini acknowledges. 

However, he also places this weakness in a broader historical context. “Historically, most emerging market currencies tend to weaken over time, to encourage exports. The rupee has weakened by around 37% in the last 10 years. Even when the rupee moved from 80 to 85, nobody discussed it this much. Now that it is around 90, it has become a buzz,” he says.

FPI ownership at a 15-year low

Speaking of ownership, as per NSE’s Market Pulse report, FPIs now own just 16.9% of NSE-listed companies, their lowest share in over 15 years, as of September 2025. The decline extends a trend that began in early 2023 and shows little sign of reversing. In the first half of FY26 alone, FPI ownership slipped another 63 bps, reflecting net outflows of $8.7 billion during the September quarter.  

“FPI ownership in the Nifty 50 and Nifty 500 companies also declined by 43bps and 46bps QoQ in the September quarter to 13-year lows of 24.1% and 18%, respectively, indicating a broad-based selling,” the report said. 

DIIs as the liferaft for Indian equities

One of the key reasons for the Indian markets to stay afloat was the scale of domestic participation. So far this year, domestic investors have added ₹7.13 lakh crore to equities, comfortably offsetting foreign outflows, thereby avoiding any market disruptions.

This reflects a structural shift in market ownership. As an HSBC report notes, “One underlying theme in India is that even if foreigners don’t buy Indian stocks, locals do. This is what we call ‘India buys India’.” Domestic investors, through mutual funds and direct retail holdings, now account for around 21% of market ownership, making them a larger force than foreign investors. 

Data from the NSE Market Pulse report shows that ownership reached record highs of 13.5% in the Nifty 50, 11.4% in the Nifty 500, and 10.9% in NSE-listed companies after domestic mutual funds invested ₹1.64 lakh crore in Q2FY26.

Latest AMFI data also points to the strength in domestic flows, as the mutual fund industry’s AUM crossed ₹80 lakh crore in November, with SIP assets rising to ₹16.53 lakh crore. This accounts for over one-fifth of total AUM, highlighting the stickiness of retail participation. Equity-oriented mutual funds recorded net inflows of ₹29,911 crore in November, up from October and reversing a four-month declining trend in net inflows into the equity-oriented category. 

Bathini says this explains why markets no longer react sharply to FPI exits. “Post-COVID, India has seen a major shift from physical to financial savings, and domestic investors have emerged as a powerful liquidity support for the market. Ten or twenty years ago, if FPIs exited a few billion dollars, markets would shake.”

What’s the road ahead?

While DIIs are expected to provide continued support and “have become a formidable force”, the HSBC report stated that for a decisive bullish phase, a return of foreign flows is key.

Bathini echoed the sentiment. “For a long, sustainable bull market, you need both domestic and foreign investors. You can’t clap with one hand.”

He also said that the Indian macros are quite favourable in terms of the rising earnings of the companies. “Whenever there is an earnings upgrade, foreign portfolio investors tend to look at the Indian markets. Once there is an earning traction, which we are foreseeing corporate earnings to rise for the year FY26-27, the margins will go up. This increases the margin of safety in the market.” 

At the same time, India’s higher market valuations have often been a sticking point for foreign investors. However, after the recent underperformance, these valuations have become more reasonable, and the premium over other emerging markets has returned to the usual historical level. In other words, valuations aren’t as much of a barrier as they were at the beginning of 2025.

The HSBC report also suggested that India is now the second largest underweight in global emerging market portfolios. “In short, there is plenty of room for foreign investors to accumulate Indian stocks. Indian equities will likely benefit if investors shift their focus beyond AI.”