Foreign portfolio investors (FPIs) significantly reduced their holdings in Indian equity markets by offloading approximately Rs 21,000 crore in the first half of August 2025. This was a follow-up of an outflow already witnessed all year. The contributing factors towards this selloff were rising trade concerns between the United States and India, poor corporate results to be reported by the companies in the first quarter, and the devaluation of the Indian rupee to the US dollar.
According to the depository data, the FPIs had also pulled back Rs 20,975 crore out of equities as of August 14. This was after an amount of Rs 17,741 crore was drawn in July. This is in comparison to the inflow of Rs 38,673 crores in the Indian equity markets witnessed earlier between March and June, pointing to a sentiment change among investors in the past few months. Total outflows through FPI equity till the year 2025 to date have recorded an outflow of Rs 1.16 lakh crore, depicting a cautious attitude of investors in the current state of uncertainty of the world economy.
The US-India trade has been strained as the US proposed secondary tariffs on Indian goods. Whereas in recent times, US-Russia tensions have eased in a way that makes it unlikely that such tariffs will be implemented after August 27, the related uncertainty has already influenced market sentiment. Analysts observe that the absence of new sanctions may bring temporary relief to the Indian markets.
In the meantime, the Indian rupee has become weak against the US dollar, and this has made rupee-denominated investments less attractive to foreign investors. Its stronger dollar has seen people move to cut exposure on emerging markets such as India. The influence of this currency depreciation also depresses the foreign investment inflows since incomes reduce after conversion to stronger foreign currencies.
The corporate first-quarter 2025 earnings did not impress some investors as they had, without exception, increased moderately. The IT sector was under immense strain with constant offloading by FPIs, and the financial and banking sector coped better with the average valuations and the continuous backing of institutions.
In addition to the domestic factors, there is uncertainty in the world that still affects investor sentiment. FPIs have shown risk-averse behaviour amidst geopolitical tensions and a lack of clarity in interest rate policy in developed markets, especially in the US.