Foreign portfolio investors (FPIs) are gradually making their way back into the Indian equity market, signaling a potential turnaround after a tumultuous start to 2025. Following a period of substantial sell-offs earlier in the year, March saw a notable shift as FPIs began to buy into Indian stocks again. This resurgence helped lift the key Nifty index by nearly 6%, although lingering concerns over global economic conditions and U.S. tariff policies continue to loom.
FPI Selling Trends in Early 2025
The beginning of 2025 was marked by a staggering ₹1.16 lakh crore in equity outflows from FPIs, as they reacted to market volatility and elevated valuations. After experiencing net inflows of ₹15,446 crore in December 2024, the mood shifted dramatically. The significant sell-off was particularly evident in January, where FPIs withdrew ₹78,027 crore, followed by ₹34,574 crore in February.
- January Outflows: ₹78,027 crore
- February Outflows: ₹34,574 crore
- December Inflows: ₹15,446 crore
As a result, the Nifty index saw a decline of nearly 1% year-to-date, while smaller stocks suffered even more, with the Nifty Midcap index plummeting over 10%.
March: A Turning Point?
Despite the earlier sell-offs, March brought a flicker of optimism as FPIs began reversing their strategy. They offloaded equities worth ₹3,973 crore during the month, but this figure marked a notable decrease compared to previous months. In fact, nearly ₹31,000 crore flowed into Indian equities in the last six trading sessions of March, driven by more attractive valuations and a strengthening rupee.
VK Vijayakumar, Chief Investment Strategist at Geojit Investments, noted the changes: "The shift from consistent selling to cautious buying was evident in late March. The resurgence of FPI investments has significantly contributed to the Nifty’s recovery."
Factors Influencing FPI Behavior
Several factors contributed to FPIs’ renewed interest in the Indian market:
- Attractive Valuations: After a 16% correction from the September 2024 peak.
- Currency Strength: Recent appreciation of the rupee has shifted the momentum back toward India.
- Improved Economic Indicators: Positive trends in GDP, IIP, and CPI inflation have set the stage for a market rally.
Looking Ahead: Tariffs and Market Stability
The future of FPI inflows hinges largely on the upcoming tariff policies announced by U.S. President Donald Trump. With significant tariffs expected to roll out on April 2, market participants are watching closely. If the tariffs prove to be moderate, it could sustain the current rally and encourage more foreign investment in Indian equities.
Debt Market Resilience Amid Equity Outflows
Interestingly, while equity outflows have been high, FPIs have shown a positive trend in the debt market, injecting ₹779 crore into Indian debt securities in 2025. This has provided a cushion against the overall negative sentiment, although total outflows in various segments still stand at ₹68,531 crore year-to-date.
Conclusion: Navigating Uncertainty
As March’s inflows provided a temporary boost, analysts warn that the broader landscape remains fraught with volatility. Global trade tensions and inflationary pressures could influence investor sentiment significantly. Experts like Himanshu Kohli, Co-founder of Client Associates, suggest that while FPIs may be more optimistic about India’s long-term potential, short-term fluctuations are likely.
In summary, while March demonstrated a promising shift in FPI activity, the uncertain global backdrop and domestic valuations keep market participants on edge. Monitoring upcoming trade policies and economic indicators will be crucial in determining the flow of foreign investments in the coming months.
