MUMBAI: For the first time in history, net outflows by foreign portfolio investors (FPIs) from the Indian stock market have exceeded the Rs 2 lakh crore mark in a single calendar year. This unprecedented sell-off has resulted in aggregate foreign holdings in Indian equities falling to a 14-year low of 14.7%, significantly below the 18.9% held by domestic institutions, according to a report by JM Financial.
Record Outflows in 2025
In just over four months until May 8, FPIs have net withdrawn nearly Rs 2.1 lakh crore from India, making this the worst yearly figure since 1993, when foreign fund managers were first permitted to invest in domestic stocks, as per data from Sebi and NSDL. More than half of these outflows occurred in March alone, following the onset of the West Asia war and the rupee's crash to below 95 against the US dollar, then an all-time low. In April, selling moderated to Rs 60,847 crore. For the entirety of 2025, total outflows from stocks stood at Rs 1.7 lakh crore.
Goldman Sachs Analysis
A report by Goldman Sachs suggests that while the intensity of FPI selling has eased, it may take time before foreign funds resume buying Indian equities. "The bulk of foreign selling is likely over, after record outflows over the recent months," the report stated. "Various approaches using flows, positioning and ownership trends suggest foreign flows are now close to downside scenarios." Analysts at the US-based financial major estimate that the downside risk of incremental foreign selling could be limited to about $4-5 billion, translating to nearly Rs 50,000 crore at the upper end.
Reasons for Delayed Re-entry
However, the report notes that while most foreign selling may be complete, "foreign re-buying may still be impeded in the near term, for a few reasons." First, empirical evidence indicates that foreign funds do not immediately return to India when oil prices fall. "Foreign capital did not return to Indian equities in the early-April oil correction, despite the significant sell-off during the preceding oil rally in March. Past evidence shows that foreign flows tend to be modestly positively correlated with falling oil prices in the short-term."
Second, earnings revisions have become an increasingly important factor guiding foreign flows in Indian equities. Although much of the foreign selling may have already occurred in anticipation of a forthcoming downgrade cycle, low visibility around a recovery will likely limit foreign re-buying in the near term, the report added.
Finally, "compared to north Asian markets, India offers a less attractive risk-reward as it trades at significantly higher growth-adjusted valuations, on top of the ongoing investor concerns over the potential adverse impact of AI," the report concluded.
