In 2025, foreign investors pulled out a historic ₹1.6 Lakh Crore (about $18 billion) from Indian stock markets, marking the largest single‑year outflow on record.
Why the massive sell‑off happened
Several factors pushed investors away:
- Higher US interest rates and bond yields: Safer, higher‑return assets in the United States attracted capital that might otherwise have gone to emerging markets like India.
- Strong US dollar: A strong dollar made Indian rupee‑denominated returns look weaker, raising the cost of hedging.
- Trade‑related worries: The risk of new US tariffs and broader geopolitical tensions created uncertainty.
- Rupee depreciation: A falling rupee reduced the dollar‑based value of Indian stocks.
- High valuations in some Indian sectors: Investors took profits in areas that seemed over‑valued.
How the outflows unfolded
Foreign Portfolio Investors (FPIs) sold Indian equities in eight of the twelve months of 2025. The only buying months were April, May, June and October. Overall, they withdrew about ₹1.58 Lakh Crore from equities while putting roughly ₹59,000 crore into Indian debt.
Domestic investors helped soften the blow
Domestic institutions and retail investors kept buying, mainly through systematic investment plans (SIPs). Their purchases balanced some of the foreign sell‑off.
Sector trends
Financial services and IT saw the biggest foreign outflows, driven by worries about US growth and tighter margins. Meanwhile, healthcare, utilities and manufacturing attracted modest foreign buying, supported by long‑term themes like infrastructure projects and the government’s manufacturing push.
What could change in 2026
Analysts see several reasons why foreign money might start flowing back next year:
- US rate cuts: If the Federal Reserve lowers rates, the dollar could weaken, making emerging‑market assets more attractive.
- Resolution of trade talks: A completed US‑India trade deal would reduce tariff concerns.
- Strong Indian earnings growth: Faster corporate profit growth could lure investors back.
- Policy continuity: Ongoing reforms and a clear budget plan are expected to support confidence.
Bottom line
2025 was the toughest year for foreign equity flows into India, but the same factors that caused the outflow—global rate moves, currency strength, and trade uncertainty—are also the levers that could reverse the trend. If US rates ease, the dollar softens, and trade tensions ease, FPIs are likely to return in 2026, potentially boosting Indian market liquidity and valuations.
Remember, this is perspective, not prediction. Do your own research before making any investment decisions.