Heavy FPI Selling Puts Pressure On Indian Markets And The Rupee

Foreign portfolio investors started December on a heavy selling note, pulling out a net $933 million from Indian equities in just the first three sessions. That figure already exceeds the $425 million they withdrew in the whole of November, and the sudden pressure contributed to the rupee slipping past the ₹90 per dollar level for the first time. Debt flows also moderated. NSDL data showed that overseas investors brought in $303 million into local bonds during the same three days, compared with $527 million during November.

In fact, FPIs have been steadily retreating from Indian equities since the beginning of 2025, pulling out a net ₹77,901 crore in the first half of the year—with the bulk of the selling concentrated in Q1. Despite this sustained outflow, their overall market share has held relatively firm, declining only marginally from 16.11% at the end of 2024 to 16.09%.

But is this due to global realignments or domestic concerns?

Why are FPIs Selling?

A prominent chief economist has said that investors are weighing opportunities across regions. The absence of progress on a trade agreement with the United States has added an element of uncertainty and has kept the domestic currency volatile. Furthermore, valuations in several pockets look stretched, while earnings growth has not kept pace, which limits the near-term upside for both stocks and the currency.

FPIs have largely remained net sellers through the year. They have withdrawn $17.33 billion from equities in 2025 so far, and the pullout for FY26 stands at $3.91 billion.

How Does India Compare With Global Markets?

The selling coincided with a period when benchmark indices were playing catch up to their global peers. While the Nifty 50 has gained 9.90% in 2025, markets such as South Korea and Taiwan recorded far stronger moves, rising 68.25% and 21.73%, respectively. The S&P 500 in the United States has also outperformed with a 16.72% surge. India’s higher tariff structure compared with neighbouring economies has not helped sentiment either.

The shift in flows has been more visible over the past few days. A number of traders booked profits after the Nifty and the Sensex hit fresh highs at the end of November and on the first trading day of December. That was followed by a sharp correction on Monday, a move that was amplified by weakness in the currency.

Can The IPO Pipeline Attract Fresh Flows?

Even so, the early December outflow may not fully represent the month’s eventual trend. Several large IPOs are in the pipeline, and the expectation is that foreign participation will be sizeable. Issues from ICICI Prudential Asset Management, Meesho, and Clean Max Enviro Energy Solutions are among those expected to draw attention.

On Wednesday, Meesho, Aequs, and Vidya Wires opened their offerings, seeking to raise around ₹6,643 crore together. Yet the same day saw FPIs sell another $449 million in equities. Interestingly, the RBI’s November bulletin noted that foreign investors have been far more constructive on IPOs this year, even as they reduced exposure in secondary markets.

Broader Market Sentiment Remains Constructive

Despite the near-term turbulence, the broader investment backdrop has not turned negative.

Some analysts believe that the outlook on consumption, infrastructure spending and policy continuity still supports a stable long-term narrative. The recent surge in equity prices means the market now needs clearer confirmation from prices rather than sentiment alone.

Foreign investors have also been positioning more positively in the debt segment, helped by expectations of a US rate cut and the more attractive yield gap between Indian and US bonds.

The direction of flows in the coming weeks may depend on how tariff discussions with the United States progress and how the ongoing IPOs absorb offshore bids. Until then, fluctuations are likely as global funds continue to adjust their exposures.

Sources:

Economic Times
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