2025 saw a striking split: foreign investors dumped a record $19 billion of Indian shares while local institutions bought a historic $90 billion.
Record‑size flows in 2025
Domestic institutional investors (DIIs) poured $90.1 billion into Indian equities, the highest ever in a calendar year. In contrast, foreign institutional investors (FIIs) pulled out $18.8 billion, also a record outflow. Over the past ten years, DIIs have invested about $256 billion, while FIIs have added only $32 billion.
Why FIIs sold Indian stocks
- Weak corporate earnings growth since mid‑2024.
- Valuations still above long‑term averages despite a slight easing.
- U.S. tariff concerns and uncertainty over an India‑U.S. trade deal.
- The rupee’s sharp fall – down 4.7% against the dollar in 2025, its worst performance since 2022.
How pricey is the market?
The Nifty index trades at a 12‑month forward P/E of 21.2, about 2% above its long‑run average of 20.8. Its price‑to‑book ratio sits at 3.2, roughly 11% higher than the historical norm of 2.9. The market‑cap‑to‑GDP ratio is now about 133% of FY26‑estimated GDP, well above the long‑term average of 87%.
What could happen in 2026?
Experts expect DIIs to keep buying. FIIs may stay cautious early in the year because valuations remain high, but a recovery in earnings, a stable rupee, and a finalized trade deal could bring them back later in 2026. A stronger rupee (e.g., moving from 92 to 87 per dollar) and a correction in U.S. markets could also trigger renewed foreign buying, potentially delivering double‑digit returns for Indian equities.
Bottom line for investors
- Domestic money is the main driver of market growth right now.
- Watch the rupee’s path – a firming rupee may invite foreign money.
- Keep an eye on corporate earnings trends; a clear improvement could lift sentiment.
- Valuation premiums mean buying at sensible levels remains important.
Remember, this is perspective, not prediction. Do your own research and consider consulting a certified financial advisor before making any investment decisions.