Global funds' asset under custody see second-worst plunge amid market rout

Global fund managers witnessed one of their largest-ever declines in assets under custody (AUC) during the ongoing correction in the Indian markets, as stocks came under pressure from foreign outflows and the weakening rupee.

 

The benchmark indices —Nifty and the 30-stock Sensex — entered the ‘correction’ zone, falling 15.2 per cent and 14 per cent, respectively, from their September peak. The broader market faced an even sharper selloff due to significant inflows over the past two years. The NSE Midcap 150 is down 19.9 per cent, while the NSE Smallcap 150 has dropped 23 per cent from previous highs.

 

The selloff, which started with China’s revival measures, was intensified by the slowing economy and US President Donald Trump’s tariff actions. Foreign portfolio investors have offloaded stocks worth Rs 1.83 lakh crore since October last year, while domestic funds have been buying on dips. In 2025, FPIs were net sellers of Rs 1.4 lakh crore, marking the worst start to any year, according to the data from National Securities Depository Ltd.

 

As a result of a selloff by global funds, the equity asset under custody held by foreign portfolio investors plunged by nearly 20 per cent to Rs 62.38 lakh crore since September, according to the data compiled by Business Standard. This is the second-highest fall, with the Covid selloff triggering an AUC loss of 26.6 per cent. Data for AUC during the 2008 global financial crisis is not available on the official platform. 

 

By definition, an asset under custody is the total market value of equities held by FPIs. The fall in the asset value of global funds can be a result of a selloff by global investors, currency depreciation and a fall in asset prices.

 

During the recent rout, the Indian rupee weakened by 4.5 per cent as a result of the dollar surge. A decline in the rupee attracts more selling from FPIs, as a weaker currency erodes the value of foreign investments. “This prompts further selling by foreign investors seeking safer investment options,” explained Rupak De, Senior Technical Analyst at LKP Securities.

 

One of the primary reasons for the decline in FPI AUC is the strengthening of the US dollar, De said. Further, limited capital expenditure in the budget and weak corporate earnings have contributed to an increased FPI selling in Indian equities, he said.

 

Sector-wise

 

In the current correction, although financial stocks saw the worst outflows in absolute terms, these were among the sectors that saw the least AUC fall. Telecommunication and information technology sectors saw the least AUC fall, while power, oil and gas and consumer goods saw the worst fall.

 

The fall in the AUC can be attributed to rupee depreciation given the strong dollar, selloff by foreign funds due to high valuation and growth slowdown, according to Chandan Taparia, head of technical and derivatives research at Motilal Oswal Securities.

 

The “good part is that the FII selling is getting arrested,” he said, adding that for market reversal, there needs to be “follow-up” action. "After months of decline, a brief recovery isn’t enough; we need consolidation and follow-up action.”