Foreign portfolio investors (FPIs) pulled a record Rs 1.6 Lakh crore (about $18 bn) out of Indian equities in 2025, leaving the market with its worst outflow year on record.
Why the massive exit?
Several global factors made investors shy away from Indian stocks:
- Higher US bond yields: Safer US assets offered better returns, pulling money out of emerging markets.
- Strong US dollar: A pricey dollar reduced the dollar‑based returns for investors holding rupee assets.
- Trade worries: The possibility of new US tariffs on Indian goods added uncertainty.
- Geopolitical tension: Concerns over energy prices and supply‑chain disruptions kept risk‑averse investors on the sidelines.
Domestic side of the story
Within India, a few factors also played a role:
- Some stocks looked expensive, prompting short‑term profit‑taking.
- Investors waited for clearer policy signals after the Union Budget.
Even though equities suffered, FPIs showed a preference for Indian debt, putting a net Rs 59,000 crore into bonds. This was helped by India’s inclusion in global bond indexes, which attracted passive fund money.
Sectoral shifts
Money left financial services and IT the most, as worries over US growth and lower interest margins grew. Meanwhile, healthcare, utilities and manufacturing saw modest inflows, driven by long‑term themes like infrastructure projects and the government’s manufacturing push.
What could change in 2026?
Analysts are cautiously optimistic about a rebound next year. They point to:
- Expected growth in Indian earnings and GDP.
- A possible US‑India trade deal that would cut tariff concerns.
- Potential Federal Reserve rate cuts that could weaken the dollar.
- Continued demand for Indian bonds as more are added to global indices.
If these tailwinds materialise, FPIs may start putting money back into Indian equities, helping the market recover.
Bottom line
2025 was a tough year for foreign money in Indian stocks, but the fundamentals that attracted investors – strong earnings growth, reform‑driven policies and a large, youthful economy – remain. Keep an eye on global interest‑rate moves, US‑India trade talks, and domestic reforms for clues on where the next wave of capital might flow.
Remember, this is perspective, not a prediction. Do your own research before making any investment decisions.