FPIs net sellers in 3 of past 5 financial years even as DIIs buy big

Sell shares worth Rs 1.31 trillion in FY25, the highest since FY22

Foreign investors have been net sellers in three of the five financial years, even as domestic institutions become big buyers.

 

Foreign portfolio investors (FPI) sold shares worth ₹1.31 trillion in FY25, the highest since FY22.

 

At the same time, domestic institutional investors (DIIs) were net buyers of shares worth ₹6.07 trillion, the highest ever in a financial year.

 

Domestic institutions have been net buyers in four out of the five previous financial years.

 

Foreign investors were net sellers in seven of the last 12 months. Most of the FPI selling happened in the second half of the financial year.

 

Initially, this selling stemmed from capital reallocation to China, lured by attractive valuations and government stimulus measures.

 

Weakening corporate results in the July-September and October-December quarters made valuations — which were elevated due to the post-pandemic rally — unjustifiable.

 

Donald Trump's victory in the US presidential elections led to further foreign capital outflows.

 

Concerns over potential shifts in US trade policy drove US bond yields higher and strengthened the dollar. This prompted FPIs to pull back from emerging markets like India.

 

After Trump's inauguration, the imposition of trade tariffs intensified investor unease, accelerating a shift from risky assets to safe assets like gold.

 

However, inflows from domestic institutions have risen over the years.

 

Net buying in FY25 has been almost three times their figure in FY24.

 

DII inflows largely comprise buying mutual funds, which stood at ₹4.7 trillion in FY25 from ₹2 trillion in the previous financial year.

 

The post-pandemic bull run saw a lot of retail investors entering equity investing through the mutual fund route. The number of systematic investment plan (SIP) accounts swelled from 37 million in March 2021 to 101 million as of February 2025.

 

“The two years of a sustained rally in the markets gave FPIs the opportunity to book profits. After the Lehman crisis, DIIs bought significantly more than what FPIs sold. And since then, domestic institutions have been the beneficiaries of a big fall in the market. When market recovery happened, they gained immensely. And, it is likely to repeat this time, too,” said Chokkalingam G, founder of Equinomics.

 

Going forward, market stability will determine the trajectory of flows. Though FPI selling narrowed in March, there are concerns that it will worsen as corporate results for January- March are likely to be tepid and uncertain around trade tariffs.

 

“We need to see consolidation in the markets and the rupee to be stable for FPI buying to come back.

 

As long as SIP flows are net positive, DIIs cannot be sitting on cash, but if the sell-off in markets comes back, then there will be a slowdown. If your net asset value is coming down, the investments will be reduced,” said Ambareesh Baliga, an independent equity analyst.