FPIs continue selling spree, withdraw ₹7,300 crore in a week; What’s driving the selloff?

Foreign Portfolio Investors (FPIs) have extended their selling streak in the Indian stock market, pulling out over ₹7,300 crore in the first week of February. This follows a significant outflow of ₹78,027 crore in January, according to data from depositories. In contrast, FPIs had invested ₹15,446 crore in December 2024.

What’s Driving the Selloff?

Experts attribute the persistent FPI exodus to global trade uncertainties, particularly the United States' decision to impose tariffs on Canada, Mexico, and China. This has heightened fears of a potential trade war, making investors wary of emerging markets like India.

Adding to the pressure, the Indian rupee depreciated sharply, crossing the ₹87 per US dollar mark for the first time. A weaker rupee diminishes returns for foreign investors, making Indian assets less attractive.

Himanshu Srivastava, Associate Director-Manager Research at Morningstar Investment Research India, pointed out that global trade tensions, along with a strong dollar and high US bond yields, have driven FPIs to offload Indian equities.

Will the Selling Continue?

Market experts suggest that FPI selling may slow down as signs of a softening trend emerge in the US dollar index and bond yields. V.K. Vijayakumar, Chief Investment Strategist at Geojit Financial Services, expects Indian market sentiment to improve following the recent Budget announcement and the Reserve Bank of India's (RBI) rate cut.

The BJP’s victory in the Delhi elections is also seen as a short-term positive for market confidence. However, the long-term outlook will depend on GDP growth recovery and corporate earnings performance.

FPIs Favor Debt Investments

While selling equities, FPIs remained net buyers in India’s debt market, investing ₹1,215 crore in the general debt limit and ₹277 crore in the voluntary retention route.

FPI Inflows vs. Outflows: A Shift in Trend

The cautious stance of foreign investors reflects a sharp shift in FPI trends. In 2024, net FPI inflows into Indian equities stood at just ₹427 crore, a stark contrast to the ₹1.71 trillion inflows in 2023, driven by optimism around India’s economic resilience. In 2022, however, FPIs had pulled out ₹1.21 lakh crore amid aggressive global rate hikes.

Outlook: A Balancing Act

Despite the volatility, analysts believe India remains fundamentally strong, with government measures aimed at navigating global economic challenges. The coming months will be crucial in determining whether FPIs return to Indian equities or continue their cautious approach.