Massive selloff: FPIs sell Indian stocks worth ₹2,700 crore per day in 2025 as risk-off sentiment grows

Indian stock market: Foreign Portfolio Investors (FPIs) have extended their selling spree to the fifth consecutive month in February, withdrawing another ₹41,748 crore from the secondary market amid rising global trade tensions and attractive U.S. bond yields.

During the last trading session of February, they sold stocks worth ₹11,639 crore, marking the biggest single-day sell-off of 2025 so far and surpassing the previous record set on January 14, when they pulled out ₹8,132 crore from exchanges.

So far this year, FPIs have withdrawn ₹1,23,652 crore from the Indian exchanges, remaining net sellers for 43 out of 46 trading sessions, with an average daily outflow of ₹2,688 crore.

Out of 20 trading sessions last month, they remained net sellers for 18 sessions, and in January, they were net sellers for 25 out of 26 sessions, pulling out ₹81,904 crore.

Domestic institutional investors (DIIs) continue to absorb the selling pressure from FPIs, but this has not been enough to help markets recover. Experts noted that, in addition to FPIs, family offices, high-net-worth individuals (HNIs), and retail investors have also begun exiting the market to protect margins, leaving DIIs to bear the full burden of the sell-off.

The relentless selling by overseas investors has significantly impacted domestic equities, sending both the Nifty 50 and Sensex down by 6% in February, marking their biggest monthly drop since October 2024. Both indices have now closed in negative territory for five consecutive months, correcting 16% from their peaks.

The broader market has suffered even greater pressure from sustained FPI selling, with the Nifty Midcap 100 and Nifty Small-cap 100 indices falling 25% from their all-time highs. The sell-off has not only impacted equities but also exerted significant pressure on the Indian rupee, which depreciated nearly 0.9% in February.

Apart from escalating global trade tensions, weak earnings in the December quarter, rich valuations, and a slowdown in economic growth are also weighing on investor sentiment, leading to a prolonged market downturn and increased risk aversion.

FPI holdings in large caps decline

Despite their heavy withdrawals from the world's fifth-largest stock market, FPIs still hold approximately $800 billion worth of Indian equities, according to a report by BNP Paribas Exane, a European equity research firm, which signals that market pain may persist if the selling continues unabated.

According to the NSE's latest report, FPI ownership in the NSE-listed and Nifty 50 companies fell by 30 basis points and 15 basis points QoQ to a 13-year and 12-year low of 17.4% and 24.3%, respectively, in the December quarter, while that in the Nifty 500 Index remained steady at 18.8%, indicating higher selling in large-cap stocks.

Meanwhile, reports suggest that overseas investors are redirecting funds to Chinese markets, expecting China's economy to strengthen following recent policy measures announced by Beijing. Additionally, the emergence of Chinese AI startup DeepSeek, which claims to be a free alternative to ChatGPT, has further boosted sentiment toward technology stocks, particularly those listed in Hong Kong.

Volatility to persist as FPIs remain cautious

Vipul Bhowar, Senior Director, Listed Investments, Waterfield Advisors, said, "Elevated valuations of Indian equities, alongside concerns about corporate earnings growth, have led to a sustained outflow of foreign portfolio investments (FPIs). The earnings reports for the third quarter of the fiscal year 2025 have been modest, indicating an atmosphere of uncertainty. Revisions to forward earnings have struggled, with downgrades outpacing upgrades, particularly among companies outside the Nifty 50 index."

This issue is further compounded by falling commodity prices and reduced consumer spending, which adversely impact corporate profits and diminish the appeal of Indian equities to foreign investors. The recent market sell-off has been influenced by rising US bond yields, a strengthening US dollar, and global economic uncertainties, leading to a shift in investor focus on US assets.

"Consequently, FPIs in Indian equities have reached multi-year lows due to significant selling, and investors are likely to await signs of recovery before re-entering the market. Until then, volatility in Indian markets is expected to continue due to ongoing global and domestic challenges," he added.

Disclaimer: The views and recommendations given in this article are those of individual analysts. These do not represent the views of Mint. We advise investors to check with certified experts before taking any investment decisions.