Foreign Investors Pull Out Billions from Indian Markets: What's Behind the Trend?

Massive Foreign Investor Exodus from Indian Equities

Foreign investors have withdrawn a staggering Rs 17,955 crore ($2 billion) from Indian equities in the first two weeks of December, bringing the total outflow to Rs 1.6 lakh crore ($18.4 billion) in 2025. This sharp withdrawal has put pressure on domestic equity markets.

Reasons Behind the Outflow

Market experts point to several factors contributing to this sustained outflow, including the sharp depreciation of the rupee and rich Indian valuations. Elevated US interest rates, tighter liquidity conditions, and a preference for safer or higher-yielding developed-market assets have also weighed on investor sentiment.

• Elevated US interest rates making Indian markets less attractive
• Tighter liquidity conditions affecting investor appetite
• Rich Indian valuations compared to other emerging markets
• Weakness in the Indian rupee impacting investor confidence

Impact on Markets and Future Outlook

Despite this persistent foreign selling, the impact on markets has been largely offset by strong domestic institutional investor (DII) participation. DIIs invested Rs 39,965 crore during the same period, effectively eclipsing FPI outflows.

Some market experts believe the selling pressure may ease, citing India's strong growth and earnings outlook. An expedited US-India trade deal could also potentially trigger a reversal in foreign investment trends.

Debt Market Trends

In the debt market, FPIs withdrew Rs 310 crore under the general limit but invested Rs 151 crore through the voluntary retention route during the same period.