Foreign investors have pulled out Rs 34,574 crore from Indian equity markets in February 2025, elevating the total outflow to a staggering Rs 1.12 lakh crore within the first two months of the year. This rapid withdrawal comes amid escalating global trade tensions and growing concerns over corporate earnings growth in India.
Rising Concerns and Elevated Valuations Driving FPI Outflows
The sustained selling by Foreign Portfolio Investors (FPIs) is primarily triggered by the elevated valuations of Indian equities coupled with uncertain corporate earnings growth prospects. Vipul Bhowar, Senior Director - Listed Investments at Waterfield Advisors, highlighted that investors are increasingly cautious, influenced by rising U.S. bond yields, a strengthening dollar, and global economic uncertainties. This situation has prompted a strategic shift towards relatively safer U.S. assets.February Outflows Intensify Market Pressure
Data from depositories indicate that FPIs sold Indian shares worth Rs 34,574 crore in February alone, following a massive Rs 78,027 crore sell-off in January. Consequently, total outflows by FPIs have reached Rs 1,12,601 crore in 2025 so far, significantly impacting investor sentiment and market stability.The extensive selling has led the benchmark BSE Sensex to decline by more than 6% year-to-date, reflecting investor caution and diminishing confidence in the short-term market outlook.
Modest Corporate Earnings Add to Market Uncertainty
Bhowar further noted that corporate earnings reports for the third quarter of FY2025 have been modest, reflecting heightened market uncertainty. Falling commodity prices and reduced consumer spending have also adversely impacted corporate profitability, making Indian equities less attractive to foreign investors.Investors Prefer Chinese Stocks Amid Attractive Valuations
V K Vijayakumar, Chief Investment Strategist at Geojit Financial Services, highlighted a critical paradox: despite attractive valuations and strong performance in India's financial services sector, FPIs are aggressively offloading shares in this sector. He attributes this to FPIs reallocating capital towards Chinese stocks, which currently offer comparatively lower valuations.Debt Market Also Witnesses Withdrawals
The cautious investor sentiment is evident in the debt market as well. FPIs withdrew Rs 8,932 crore from the debt general limit and another Rs 2,666 crore from the debt voluntary retention route, highlighting the broad-based withdrawal across asset classes.Drastic Contrast to Previous Investment Trends
The first two months of 2025 underline a sharp reversal from previous years' trends. In 2024, FPIs maintained a cautious stance, netting a mere Rs 427 crore inflow. This contrasts dramatically with the robust Rs 1.71 lakh crore inflow recorded in 2023, driven by optimism surrounding India's robust economic fundamentals. Meanwhile, 2022 had seen net outflows totaling Rs 1.21 lakh crore amid aggressive global monetary tightening.The current scenario underscores a significant shift in foreign investor sentiment, reflecting global economic volatility and valuation-driven market strategies.
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