In 2025, foreign portfolio investors (FPIs) moved a lot of money out of Indian stocks, choosing other global markets that performed better.
Better Returns Abroad
These investors found higher year‑to‑date (YTD) gains in many overseas indices compared with India’s Sensex.
- South Korea – Kospi: 66.5% gain
- Hong Kong – Hang Seng: 30.9% gain
- Japan – Nikkei 225: 26.0% gain
- Brazil – BOVESPA: 25.6% gain
- Germany – DAX: 21.3% gain
- USA – Nasdaq: 20.8% gain
- UK – FTSE 100: 19.8% gain
- China – Shanghai Composite: 18.8% gain
- USA – S&P 500: 16.5% gain
- USA – Dow Jones: 13.6% gain
- France – CAC 40: 10.3% gain
- India – Sensex: 5.7% gain
Which Indian Sectors Were Sold?
FPIs mainly reduced holdings in sectors they felt were less promising:
- Information Technology (IT)
- Fast‑moving consumer goods (FMCG)
- Power
- Consumer durables
- Healthcare
- Banking & financial services (BFSI) – only a small sell‑off, matching its large weight in the market
Domestic Liquidity Flow
Indian institutional investors, driven by retail money, are now the main source of market cash.
- Domestic Institutional Investors (DIIs) are pouring money into mutual funds.
- Most of the inflow goes to flexi‑cap, mid‑cap and small‑cap funds.
- Retail money is therefore concentrating in mid‑ and small‑cap stocks.
- Because secondary‑market ideas are harder to find, investors are turning to the primary market, boosting IPO activity.
What 2026 Might Hold
Two broad scenarios are possible:
- Best case: No big government cap‑ex spend and credit growth stays below 9‑11%. The market may keep consolidating, reaching cheaper valuations that could lure FPIs back, especially if the rupee stays weaker.
- Worst case: Retail loan defaults rise, stressing the banking sector. FPIs might pull back from banks, sparking a market correction.
How to Position Your Portfolio
- Give larger weight to large‑cap stocks, which are likely to act as a shock absorber.
- Consider adding mid‑ and small‑cap exposure selectively during market dips.
- Watch credit growth and retail loan health as early warning signs.
Remember, this is perspective, not a prediction. Do your own research and consider your risk tolerance before making any investment decisions.