Why Foreign Investors Pulled Out Nearly ₹1 Lakh Crore from India

In early 2025, foreign portfolio investors (FPIs) have withdrawn nearly ₹1 lakh crore from Indian equities, marking a significant shift from the previous year’s investment trends. This sell-off, driven by rising US bond yields and geopolitical tensions, reflects a growing preference for the US market following Donald Trump’s return to the presidency.

Current FPI Trends

The recent trend indicates a significant reversal from the previous year’s investment patterns. In December 2024, FPIs were net buyers, contributing positively to the Indian market. However, the onset of 2025 has seen aggressive selling, particularly in January, which recorded the highest withdrawal in a single month.

Reasons Behind the Sell-off

Several factors are influencing this wave of foreign disinvestment:

  • US Bond Yields: As US bond yields rise, they become more attractive to investors, pulling capital away from riskier emerging markets like India.
  • Geopolitical Tensions: Ongoing global conflicts and economic uncertainties are causing investors to adopt a more cautious stance.
  • US Economic Optimism: The return of Trump to the presidency has shifted investor sentiment, enhancing confidence in the US market and leading to significant reallocations of capital.

Market experts suggest that the current selling pressure may continue unless global conditions stabilize. The liquidity and sentiment in the Indian stock market could be adversely affected if FPIs maintain their withdrawal trend. However, DIIs have played a crucial role in cushioning the impact of these outflows, preventing a major downturn in the market.

Analysts Predict Recovery for Indian Equities Amid Investment Drop

  • The total foreign investment for the year 2024 was just ₹427 crore, a dramatic 99% decrease compared to 2023.
  • In February 2025 alone, FPIs withdrew ₹21,272 crore, with ₹13,930.48 crore coming in just five days (Feb 10-14).
  • Analysts believe that if macroeconomic stability returns, Indian equities could regain their attractiveness, leading to a potential rebound in foreign investments.

The current exodus of foreign investors from Indian equities highlights the impact of global economic dynamics and political developments. The sharp decline in FPI inflows raises concerns about market stability, yet the resilience shown by domestic investors offers some hope. As the global economic landscape evolves, the Indian market’s ability to attract foreign capital will depend on restoring macroeconomic confidence and stability. Investors will be closely watching these developments to gauge when it might be the right time to re-enter the Indian equities market.

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