FPIs Sell Record $18.4 Billion in Indian Equities in 2025

A Record Year for Foreign Outflows

Foreign portfolio investors (FPIs) aggressively sold Indian equities throughout 2025, pulling out a record $18.4 billion (approximately ₹1.6 lakh crore) by mid-December. This marks the highest-ever annual outflow, surpassing the previous peak of $16.5 billion seen in 2022. The selling pressure intensified towards the year's end, with FPIs withdrawing $133 million in just the first three trading sessions of December. This sustained exodus has tested the resilience of the Indian market and contributed significantly to the Indian rupee weakening past the ₹90 per dollar mark for the first time.

Despite India's strong macroeconomic fundamentals, including robust GDP growth and moderating inflation, foreign investors remained net sellers in eight of the twelve months. The selling was particularly severe in the first quarter, with FPIs offloading shares worth ₹78,027 crore in January alone. This trend has led to a significant shift in market ownership, with the FPI stake in NSE-listed companies falling to 16.9%, its lowest level in over 15 years.

Why Are Foreign Investors Selling?

A combination of global and domestic factors fueled the unprecedented sell-off. A primary driver was a global capital rotation, where investors pulled money from India to fund opportunities in other Asian markets. As the artificial intelligence (AI) boom fueled sharp rallies in semiconductor and technology stocks in South Korea and Taiwan, India became a source of funds for this trade. Consequently, the MSCI India index returned just 2.5% in dollar terms, starkly underperforming the MSCI Emerging Markets index's 27.7% gain.

Domestic challenges compounded the issue. The persistent weakness in the Indian rupee, which declined by over 5% to become Asia's worst-performing major currency, eroded returns for dollar-based investors. Additionally, many analysts pointed to stretched valuations in several pockets of the Indian market, which were not supported by corresponding earnings growth. The lack of progress on a trade agreement with the United States also introduced an element of uncertainty, keeping the currency volatile and sentiment subdued.

Sectoral Shuffle: Where Did the Money Go?

The FPI selling was not uniform across the board; it reflected a clear repositioning of portfolios. Sectors with high dependence on global revenues or those sensitive to policy uncertainty faced the heaviest outflows. Financial Services (BFSI), Information Technology, and Healthcare were among the worst hit, as their large weight in benchmark indices made them a preferred exit route for FPIs reducing their overall exposure.

The table below illustrates the sectoral FPI equity flows for the first half of December 2025, highlighting the key areas of selling and buying.

In contrast, sectors like Oil, Gas & Consumable Fuels saw net inflows of $131 million, driven by interest in large-cap energy companies and lower crude prices. Metals & Mining also attracted foreign capital on bets of a potential recovery in global demand.

The Domestic Wall of Money

The most remarkable aspect of 2025 has been the market's ability to withstand the record foreign selling. This resilience is almost entirely due to the overwhelming support from domestic institutional investors (DIIs). Mutual funds, insurers, and pension funds collectively poured in a staggering ₹4.7 lakh crore, effectively absorbing the bulk of the FPI outflows and preventing a market collapse.

This trend signifies a structural shift in the Indian market, where domestic capital has become a formidable force. The combined ownership of households, through direct investments and mutual funds, reached 18.75%—the highest in 22 years. This 'India buys India' phenomenon has reduced the market's historical dependence on foreign flows and cushioned it from global volatility.

Outlook for 2026: A Contrarian Opportunity?

Looking ahead, the narrative for 2026 is cautiously optimistic. Several global brokerages have upgraded India to an 'overweight' stance, citing that the negative factors of 2025 may be receding. Valuations have normalized after the market's relative underperformance, making Indian equities more attractive. With FPIs now significantly underweight on India in their global emerging market portfolios, there is substantial room for them to rebuild their positions.

Analysts believe corporate earnings have bottomed out and are poised to accelerate, driven by sectors like banking, automobiles, and power. A potential reversal of the AI-centric capital rotation could also trigger a return of flows to India, positioning it as a 'reverse AI trade'. The direction of FPI flows in the coming months will likely depend on currency stability, progress on trade discussions, and the absorption of upcoming large IPOs. While domestic investors have proven their strength, a return of foreign capital will be key for a sustained, broad-based market rally.