Foreign portfolio investors (FPIs) have been steadily reducing their stake in companies listed on the National Stock Exchange (NSE) since March 2023, with their share falling to a 17-year low in the current financial year (FY26), according to data released by the NSE.
Steady Decline Since March 2023
The data reveals that the aggregate shareholding of FPIs in NSE-listed firms has been on a sustained downward trajectory over the past three years. As of March 2023, FPIs held a significant portion of the market, but this has consistently decreased month after month. The decline has accelerated in recent quarters, reflecting a broader trend of foreign investors reducing their exposure to Indian equities.
Reasons for the Decline
Market analysts attribute this trend to several factors, including global monetary tightening, geopolitical uncertainties, and a shift in investment preferences towards other emerging markets. The US Federal Reserve's aggressive interest rate hikes have made dollar-denominated assets more attractive, prompting FPIs to repatriate funds. Additionally, concerns over elevated valuations in the Indian stock market and slower-than-expected corporate earnings growth have dampened investor sentiment.
Impact on Indian Markets
The sustained selling by FPIs has put pressure on Indian equity markets, leading to increased volatility. However, domestic institutional investors (DIIs) have stepped in to absorb much of the selling, preventing a sharper decline. The NSE data shows that while FPI holdings have shrunk, domestic participation has risen, indicating a gradual shift in market ownership.
Sector-wise Analysis
The decline in FPI stake has been broad-based across sectors, with financial services, information technology, and consumer goods witnessing the largest outflows. However, some sectors such as healthcare and utilities have seen relatively smaller reductions, as they are considered defensive plays during uncertain times.
Outlook for FY26 and Beyond
Going forward, the trend of FPI outflows may continue in the near term, especially if global interest rates remain elevated. However, India's strong macroeconomic fundamentals, including robust GDP growth and a stable political environment, could attract foreign capital once global conditions stabilize. The NSE data serves as a crucial indicator for policymakers and investors to monitor foreign investment trends and their implications for the domestic market.
