Record FPI Selloff Of $18.4B In Indian Equities

The outflow of foreign portfolio investors (FPIs) out of Indian equities is rising at an unprecedented rate. According to the records of the NSDL, as of December 12, 2025, net FPI equity sales have hit a record high of $18.4 billion, surpassing the previous highest net FPI sales recorded in 2022 of $16.5 billion.

The net FPI equity sales in 2025 were largely reflected in the secondary markets amid heightened global pressure. While FPIs have gradually shifted their focus towards the primary market, overall equity exposure was reduced, resulting in net selling being primarily visible through secondary market transactions.

Domestic funds have been net buyers of equity each month during 2025, and their equity investments through December 12, 2025, totalled ₹4.7 lakh crores, up from ₹4.3 lakh crores for the whole of 2024 .

The ongoing purchases of domestic equity are serving to calm the Indian market in light of the unprecedented number of sales by foreign investors. What do you think are the reasons for this wave of sales by foreign investors, and what effect will this have on the future of the Indian equity market?

How Did FPI Flows Evolve Earlier This Year?

At the beginning of 2025, foreign portfolio investors (FPIs) appeared to be making selective investments, but as global uncertainties increased, they quickly engaged in net selling. The $18.4 billion sale represents a significant increase from the previous year and has resulted primarily from the lack of new primary issuances within the current environment.

Domestic institutional investors (DIIs), such as mutual funds and life insurers, have demonstrated continued strength during this period, having absorbed the vast majority of the outflows from FPIs. The total inflows into DIIs clearly indicate their resilience and ability to mitigate the selling pressure on the equity indices due to the level of demand from foreign portfolio investors during this period. The domestic investor base has matured over time and, therefore, has inhibited larger corrections in the market.

A growing divergence exists in the selling behaviour of FPIs compared to the buying behaviour of DIIs, which is an evolution of a market's maturity. Weaknesses related to the volume of primary issuances resulted in less capital being available to domestic institutional investors, which resulted in a liquidation of positions within secondary markets by foreign institutional investors.

Record Outflow Drivers And Market Impacts

Indian markets appearing highly overvalued led FPIs to sell $18.4 billion in equities.

This sell-off created volatility but did not threaten to disrupt India’s stock markets significantly. DIIs with equal to or greater than ₹4.7 lakh crore supported the stock markets, which were resilient and insulated from downward downside risks through excessive amounts of domestic money.

The growth of domestic institutions might provide sufficient capital inflows to counter any additional FPI sales, but the recent record outflow raises issues about liquidity and valuations.

What To Watch Out For Next?

The domestic funds' outperformance continues to show since the beginning of 2024, exceeding the ₹4.3 lakh crore full-year investment. This 12-month trend shows a shift towards greater reliance on the Indian markets.

The mutual fund industry is playing an important role in converting the savings of retail investors into equity investments due to the large number of FPIs exiting the market. The balance between foreign portfolio investors (FPIs) and domestic institutional investors (DIIs) has become a stabilising force in terms of equity markets.

But the question remains: Will this dynamic support the liquidity measures being implemented by the Reserve Bank of India (RBI), as well as the government's fiscal measures, which are aimed at providing inclusive growth?

Sources:

Economic Times