Foreign institutional investors (FIIs) have been selling aggressively this year, offloading over Rs 2 lakh crore in equities, including Rs 33,000 crore just in September. By September 26, their total sell-off in the cash market reached nearly Rs 2 lakh crore. Last week alone, FIIs sold shares worth Rs 19,550 crore and continued as net sellers on Monday with Rs 2,805 crore more offloaded.
However, FII participation in primary markets remains strong, with around Rs 48,000 crore invested in IPOs so far in 2025. Experts say FIIs are exiting India due to high equity valuations, better opportunities abroad, especially in China, sluggish earnings growth and ongoing geopolitical risks.
This sharp selling, coupled with fresh tariffs on Indian goods and a punitive hike in H-1B visa fees by the United States, has rattled sentiment and triggered one of the steepest market declines of 2025. India’s equity market closed in the red for the seventh straight session on Monday amidst mixed global cues and cautiousness ahead of the RBI’s MPC decision on Wednesday. The BSE Sensex and NSE Nifty have declined more than 3% each in the past seven sessions.
“Foreign portfolio investors (FPIs) pulled out $21 billion from India during the last year. This is the largest outflow from emerging markets during this period. This FPI outflow has also largely contributed to depreciation in the rupee of 3.5% against the dollar. The elevated valuations in India vis-à-vis other markets and the tepid earnings growth are the principal reasons behind the FPI pullout,” said VK Vijayakumar, Chief Investment Strategist, Geojit Investments Limited.
In the first three months of 2025, FPIs were sellers. In the next three months they turned buyers. In July, August and September, they have again turned sellers. Depreciation of India’s local currency also contributed to the selling mainly because many other emerging market currencies appreciated against the dollar this year. Further, FIIs are reassigning their positioning in other markets such as Hong Kong, Taiwan and South Korea which have given solid returns this year.
Slower domestic earnings growth has been another important reason for FII exodus. Indian company earnings in recent quarters fell short of expectations, reducing confidence in robust near-term returns and causing investors to seek other regions with stronger growth outlooks. Further, uncertainty over global trade, including new US tariffs and higher visa fees, has weighed on sentiment.
Vijayakumar stated that earnings growth in India is expected to pick up from the third quarter of FY26, gathering momentum in FY27. “The lower GST rates and cheap credit are facilitating a big turnaround in industries like automobiles and white goods. This will ultimately reflect in superior earnings growth which the market and FPIs will start discounting. Also, further depreciation in INR is unlikely and, therefore, FIIs investing in India now are likely to benefit. Therefore, it can be safely assumed that we are near the trough of the FPI pullout,” he said.