The Indian equity market faced an unprecedented exodus of foreign capital in 2025, with Foreign Portfolio Investors (FPIs) pulling out a record sum, marking the worst annual outflow ever recorded. This massive withdrawal occurred despite early signs of recovery in corporate earnings and domestic consumption, highlighting fragile global sentiment towards Asia's third-largest economy.
Unprecedented Selling Streak and Record Numbers
As of December 27, FPIs sold Indian equities worth a staggering ₹22,130 crore through the secondary market, continuing their selling spree for a sixth straight month. This relentless selling throughout the year pushed cumulative secondary market outflows to a colossal ₹2,31,990 crore.
While FPIs were net sellers on the exchanges, they remained net buyers in the primary market, investing ₹73,583 crore in new issuances during 2025. However, this inflow was far outweighed by the secondary market selling. The total net outflow for the year stood at a historic ₹1,58,407 crore, the worst figure on record. Out of the twelve months, foreign investors were net buyers in only three: April, May, and October.
Key Drivers of the FPI Exodus
The selling intensified sharply in December after a brief slowdown in November, coinciding with a sustained crash in the Indian rupee. The rupee lost over 6% of its value in 2025, emerging as the worst-performing currency in Asia. A weak rupee directly erodes the dollar returns for foreign investors and amplifies perceived risks, prompting a flight to safer havens.
Dr VK Vijayakumar, Chief Investment Strategist at Geojit Investments Limited, noted, “The sustained selling by FIIs have contributed significantly to the sharp depreciation in INR this year. Improvement in fundamentals are likely to attract net FII inflows in 2026. Robust GDP growth and prospects of improvement in corporate earnings in 2026 augur well for positive FII flows in 2026.”
Analysts point to a confluence of factors behind the 2025 exodus:
- Delay in US Trade Deal: Hopes for a finalized trade agreement with the United States faded despite multiple rounds of negotiations.
- Stretched Valuations: Indian equities were perceived as expensive compared to recovering peers in other Asian markets.
- AI Gap: India's relatively lower exposure to the global artificial intelligence boom made it less attractive to tech-focused global capital.
This marked a stark reversal from early 2025 when India was seen as a safe haven after the announcement of global tariffs by US President Donald Trump, attracting initial inflows.
Domestic Investors to the Rescue
Despite the massive FPI withdrawal, the Indian stock market demonstrated remarkable resilience, largely insulated by robust buying from Domestic Institutional Investors (DIIs). The Nifty 50 index surged 10% in 2025, setting it on course for a tenth consecutive year of gains.
DIIs, primarily mutual funds, acted as a powerful counterbalance. They purchased equities worth ₹64,056 crore in December alone, taking their total inflows for the year to a record ₹7.72 lakh crore. This underscored immense confidence from retail investors in the domestic economy's long-term story.
DII buying began aggressively with ₹86,591 crore in January and ₹64,853 crore in February. After a softer period, inflows picked up again strongly in May and June, driven by a surge in block deals. This sustained domestic support not only cushioned the FPI exit but also led to a significant shift in institutional ownership patterns across Indian companies.
The contrasting actions of FPIs and DIIs in 2025 highlight a evolving narrative for Indian markets, where domestic capital is increasingly becoming a decisive force, even in the face of global headwinds.
