Foreign portfolio investors (FPIs) have remained persistent sellers in 2025, pulling out a staggering ₹1.06 lakh crore from Indian markets by October 1. The heavy outflow has left India trailing behind its global peers, with the country emerging as the weakest among the top 10 equity markets in the September quarter.

India’s Market Slide

India’s overall market capitalisation slipped 5.6% to $5.08 trillion in Q3 2025, down from $5.38 trillion in the previous quarter. The weakness dragged frontline indices, with both the Sensex and Nifty losing nearly 4%, while the BSE Midcap and Smallcap indices fell over 4.5% each, reflecting broad-based selling pressure.

Global Comparison

While India struggled, several global markets rallied. China surged 20% to $12.96 trillion, followed by Taiwan and Hong Kong, both up nearly 12%. The US advanced 8.4%, Canada rose 8%, and Japan climbed 6.2%. Meanwhile, the UK and France eked out marginal gains, and Germany declined 2.3%, underscoring India’s relative underperformance.

FPI Flow Volatility

The year has seen sharp swings in FPI flows. January witnessed record withdrawals of ₹77,211 crore, followed by another ₹24,301 crore in February. Inflows made a brief comeback in March (₹32,981 crore) and May (₹30,950 crore), aided by debt participation. However, selling pressure resumed in April, June, July, August, and September, with April (-₹20,190 crore) and August (-₹20,505 crore) marking the heaviest outflows. The new quarter also began on a weak note, with ₹2,254 crore withdrawn on October’s first trading day.

Segment-Wise Breakdown

Sentiment Drivers

Foreign selling was fuelled by stretched valuations, inconsistent earnings, and global macro headwinds. A fresh overhang emerged in late September when the US imposed 100% tariffs on branded and patented pharmaceutical imports unless companies shifted manufacturing to America, denting investor confidence further.

Outlook

Despite the turbulence, brokerages expect earnings momentum to gradually improve, supported by GST 2.0 reforms and the possibility of policy easing by the RBI. Growth opportunities remain strong in consumer discretionary, defence, renewables, technology, domestic manufacturing, PSU banks, and select NBFCs, sectors that could help India regain investor favour in the medium term.

Conclusion

In conclusion, India’s equity markets face short-term pressure from persistent FPI outflows and global headwinds, but strong domestic demand, policy support, and sector-specific opportunities provide a resilient backdrop. While near-term volatility may continue, structural growth drivers could help India regain investor confidence and re-emerge as a preferred investment destination.

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