FPI selloff leads to worst equity market start in nearly 10 years

India records the highest FPI equity sales among EMs

Foreign portfolio investors (FPIs) have sold over $10 billion (more than ₹97,000 crore) worth of Indian equities in the first six weeks of 2025 — the highest outflow ever recorded during this period. This massive selloff has led to the worst start for domestic markets in nearly a decade. 

The selloff has been driven by a combination of slowing corporate earnings and shifts in US policy, which have made US debt securities more attractive and strengthened the dollar. 

Heightened FPI selling has pushed the benchmark Nifty down by 2.6 per cent, while the Nifty Midcap 100 and Nifty Smallcap 100 have fallen by 11 per cent and 15 per cent, respectively. This marks the steepest six-week decline at the start of a year since 2016 for all three indices. 

India has recorded the highest FPI equity sales among emerging markets (EMs). Taiwan follows, with FPIs selling $2.5 billion worth of shares in 2025. 

 

FPI outflows began in October 2024, triggered by China’s stimulus measures to revive its struggling economy. The election of Donald Trump as US president added to global concerns, as his policy promises were seen as disruptive to the global economy. This dimmed the appeal of EMs and lifted demand for US debt securities.

 

Since taking office, President Trump has followed through on his tariff threats, imposing a 25 per cent levy on imports from Canada and Mexico and an additional 10 per cent tariff on Chinese goods. However, he temporarily paused tariffs on Canada and Mexico for a month.

 

This week, the US president imposed a 25 per cent tariff on steel and aluminium imports and reiterated threats to levy reciprocal tariffs against countries that tax US imports.

 

“The level of uncertainty caused by daily announcements and rollbacks is unprecedented since Trump took office. Equity markets hate uncertainty, and when it arises, investors flock to safe havens. This is exactly what’s happening now. Until there is clarity and proper articulation of tariff policies, investors will remain cautious,” said U R Bhat, cofounder of Alphaniti Fintech.

 

The greenback has strengthened considerably since October, prompting investors to shift to safer assets like 10-year US Treasury bonds. During this period, the rupee has depreciated by 3.6 per cent against the dollar, while the 10-year US bond yield has risen by 81.5 basis points. The dollar index, however, has declined by 7 per cent. A weaker rupee erodes returns for foreign investors, and rising bond yields make the risk/reward equation less attractive.

 

Underwhelming earnings reports from Indian companies for the October-December quarter have further exacerbated FPI selling.

 

“We are witnessing the fastest deceleration in earnings growth in a long time, coupled with high valuations. Even largecap indices are overvalued. With a negative outlook for EMs and the rupee, I expect FPIs to continue selling for several months until the rupee stabilises,” said Saurabh Mukherjea, founder of Marcellus Investment Managers.