The exodus of Foreign Portfolio Investors (FPIs) from Indian equity markets continued unabated in January 2025, with net outflows touching ₹78,027 crore, according to depositories data. Except for one session, FPIs remained net sellers throughout the month, as the Trump trade effect drove capital away from emerging markets.
Despite the sustained selling spree, the Indian policymakers remains unperturbed, viewing the trend as a phase of profit-booking rather than a sign of distress. “Indian fundamentals remain strong, and most FPIs are exiting only after booking healthy profits,” official sources said. “Their departure should not be seen as entirely negative — just as they leave, others are also coming in.”
What’s Driving FPI Outflows?
The strengthening dollar and rising US bond yields, triggered by Donald Trump’s return to the White House, have made US assets more attractive, leading to capital flight from Indian equities. In contrast to January’s heavy selling, FPIs were net buyers of ₹15,448 crore in December 2024, but had offloaded ₹94,017 crore and ₹21,612 crore in October and November, respectively.
According to VK Vijayakumar, Chief Investment Strategist at Geojit Financial Services, the primary reason behind this FPI pullout is the strong US economic performance and corporate earnings, which have outpaced India’s recent growth and earnings trajectory. “The Budget has improved sentiment, and with growth and earnings recovery expected, the trend could reverse,” he noted. “However, Trump’s tariff policies have injected uncertainty into the global economic landscape.”
Impact of Rupee Depreciation & Market Valuations
Apart from global factors, domestic challenges have also contributed to the outflows. Himanshu Srivastava, Associate Director – Manager Research at Morningstar India, pointed out that the continued depreciation of the rupee is pressuring foreign investors to pull out funds.
Additionally, the high valuation of Indian equities, despite recent corrections, has made investors wary. Macroeconomic headwinds, an uncertain earnings season and unpredictable Trump policies have further prompted caution among FPIs, he added.
Looking Ahead: Will FPIs Return?
While the past week marked the fifth consecutive week of FPI selling, analysts believe a turnaround could be in sight. If growth stabilises and earnings pick up, FPIs may re-enter Indian markets, especially as global economic conditions evolve. For now, the government’s stance remains clear: FPIs may be leaving, but they’re not fleeing—and they will return when market conditions align with their investment strategy.