Foreign Portfolio Investors (FPIs) have significantly reduced their investments in Indian equities during the first half of August 2025, offloading shares worth approximately Rs 21,000 crore. This continues a trend of selling that was also observed in July, when FPIs withdrew Rs 17,741 crore. Cumulatively, in 2025, FPIs have withdrawn a substantial Rs 1.16 lakh crore from domestic equities.

Factors Contributing to the Outflow

Several factors have contributed to this significant outflow:

• US-India Trade Tensions: Escalating trade tensions between the United States and India have shaken investor confidence. The US imposed a 25% tariff on Indian goods, followed by an additional 25% increase, creating uncertainty about future trade relations. Investor sentiment toward India soured after the tariff imposition.
• Disappointing Corporate Earnings: Corporate earnings for the first quarter of the fiscal year have been disappointing, with many companies reporting weaker-than-expected performance. This has reinforced a cautious outlook on India's economic growth.
• Rupee Depreciation: The Indian rupee's depreciation against the US dollar has made local assets less attractive to global investors. A weakening rupee influences FPI decisions, making Indian assets less appealing in the short term.
• Attractive US Treasury Yields: Higher US Treasury yields have encouraged a shift towards safer investment options abroad.
• Geopolitical Tensions: Heightened geopolitical tensions and ambiguity surrounding interest rate trajectories in developed economies have contributed to the sustained outflows.
• Rich Valuations: Concerns about rich valuations in the Indian market have also driven FPIs to other emerging markets.

Impact and Market Performance

Despite the continuous selling pressure from FPIs, the Indian stock market has shown resilience, though it has underperformed compared to many of its global peers. The Nifty 50, for instance, has slid 0.55% in August, while other indices such as the US Dow Jones, Europe's Euro Stoxx 50, and Germany's DAX have advanced.

Domestic Institutional Investors (DIIs) have been consistently supporting the market by absorbing FPI selling. So far in August, DIIs have bought equities worth Rs 55,795.28 crore. DII inflows have crossed ₹4.7 lakh crore in 2025 so far.

Expert Opinions and Outlook

Experts suggest that the future trend of FPI flows into Indian equities will depend on how the tariff issue between India and the US unfolds. Easing tensions between the US and Russia could lead to a reconsideration of tariffs imposed on India. S&P Global's upgrade of India's long-term sovereign credit rating to 'BBB' from 'BBB-' could also boost FPI sentiment.

However, some analysts expect FPI sentiment to remain fragile in the coming months, with trade negotiations and tariff-related developments being key factors to watch.

Impact on Key Sectors

FPIs have been heavily selling domestic tech stocks. In July alone, they withdrew ₹20,000 crore worth of holdings in the IT sector, influenced by lackluster earnings and a weak demand outlook.

Overall, while the Indian stock market faces challenges due to FPI outflows, strong domestic flows and potential positive developments in trade relations and global geopolitics offer some support and could influence future investment decisions.