By Ankit Mandholia
The withdrawal of foreign portfolio investors (FPIs) from Indian markets is driven by a complex interplay of global economic trends, geopolitical uncertainties, monetary policies, and domestic factors. Since sustained outflows could pose challenges to market stability, it is important to ensure that there is macroeconomic stability to enhance the competitiveness of Indian markets, explains Ankit Mandholia
Is this part of a broader emerging markets sell-off?
While FPIs have been reducing their investments in India, this behaviour aligns with a broader trend of withdrawing from emerging markets. In 2025 so far, FPIs have sold Indian equities worth Rs 1.5 lakh crore, contributing to a 6% decline in the Nifty index year-to-date. This suggests that global factors are prompting investors to pull back from riskier assets. However, India’s relatively high market valuations and concerns over corporate earnings have made it more susceptible to these outflows.
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Despite economic challenges in China, some FPIs are increasing their exposure there due to attractive valuations and government stimulus measures. In contrast, India’s markets have experienced significant rallies in recent years, leading to higher valuations. This disparity has prompted FPIs to rebalance their portfolios for better near-term returns.
Also, China’s advancements in AI, technology (semiconductor chips, robotics, EVs, batteries) and green energy has made it attractive for tech-focused FPIs. However, the recent FPI moves reflect a more tactical reallocation rather than a long-term shift from India.
US market more appealing
The US Federal Reserve’s decision to maintain elevated interest rates has made US assets more appealing to investors, leading to a stronger dollar. This has resulted in capital outflows from emerging markets, including India. The stronger dollar also makes investments in emerging markets less attractive due to potential currency depreciation.
In addition, the Russia-Ukraine conflict and growing unrest in the Middle East have heightened global uncertainty and have led to FPI outflows from markets perceived as vulnerable to external shocks, including India.
Also, India’s reliance on energy imports makes it susceptible to fluctuations in global oil prices.
US tariff policies
The announcement of reciprocal US tariffs on Indian exports has raised concerns about India’s trade prospects and economic growth.
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