Foreign Portfolio Investors (FPIs) embarked on a sell-off in Indian equities ahead of the inauguration of US President Donald Trump on January 20, 2025. In just the first ten days of January, FPIs sold net shares worth ₹22,194 crore, adding to the pressure was enlarged. on domestic stock markets.
The sell-off is in line with a broader trend of volatility in Indian equities over the past week, with FPIs remaining net sellers on each trading day. Concerns about possible policy changes under the incoming US administration, combined with global economic uncertainties, have increased investor caution.
However, domestic institutional investors (DIIs) provided some calm to the market. Robust retail inflows into equity funds saw DIIs step in as net buyers, partially offsetting the FPI exodus. Their continued confidence underlines the resilience of India’s domestic investment base amid global headwinds.
Market analysts attribute the FPI outflow to a combination of profit booking, global liquidity adjustments and concerns about Trump’s policy directions. Meanwhile, retail investor participation through mutual funds remains a bright spot, reflecting growing confidence in India’s long-term growth story despite short-term market turbulence.
Sharp contrast
The January-to-date FPI outflows are in stark contrast to the December 2024 situation, when FPIs had net invested ₹15,448 crore.
VK Vijayakumar, Chief Investment Strategist at Geojit Financial Services, said FPIs have intensified their selling spree in January 2025. “They have been sellers every day except January 2. Sales have intensified in recent days. The main reason for the relentless selling by the FPIs is the steady rise in the dollar index, which is now above 109. The rise in 10-year bond yields above 4.6 percent will allow capital flows to flow out of emerging markets like India,” he said.
The latest data from the US points to the resilience of the US economy and the unemployment rate came in better than expected at 4.1 percent. This means that the possibility of further Fed rate cuts in 2025 is diminishing, which will further push bond yields higher. “In short, the macro construction is not beneficial for the returns of the FPIs in the short term. They are likely to push for further sales, putting pressure on the market,” Vijayakumar added.
Himanshu Srivastava, Associate Director – Manager Research, Morningstar Investment Research India, said FPIs went into a selloff in the first few days of the new year.
Multiple factors
This exodus of foreign money from Indian markets can be attributed to a host of factors such as: expectations of another weak earning season, concerns over the tariff war under the Trump presidency, slowdown in Indian GDP growth, still high inflation rates and uncertainty about the growth of India’s gross domestic product. the beginning of interest rate cuts in India, he said.
“The record level of the Indian rupee, the rise in US bond yields coupled with the rich valuation of the Indian markets also make Indian equities relatively unattractive to foreign investors,” Srivastava added.
Sharp outflows from FPIs over the past week have contributed significantly to the Indian stock market’s biggest weekly decline in almost a month. Both the Sensex and the Nifty50 posted losses of 2 percent each during the week, while the Midcap index tumbled 6 percent and the Smallcap index fell over 7 percent.
Market observers noted that the sell-off was broad-based with all sectoral indices except the Nifty IT index ending in the red. The magnitude of the decline underlines the pervasive impact of the FPI withdrawal, compounded by global uncertainties and pressure on earnings bookings.
“The market weakness was indiscriminate and spared only the IT sector amid an otherwise gloomy scenario,” analysts said. The steep corrections in the broader indices, especially mid-cap and small-cap stocks, underlined increased caution among investors in non-blue chip segments.
