In a worrying trend for the Indian stock market, Foreign Portfolio Investors (FPIs) pulled out a staggering ₹23,885 crore from Indian equities during September. This marks the third consecutive month of net outflows, signaling growing apprehension among international investors.
While the calendar year 2025 began with a robust net inflow exceeding ₹78,000 crore in January, the positive sentiment was short-lived, followed by two months of withdrawals. Despite moderate inflows observed in April, May, and June 2025, the overall picture remains somber.
The pessimism isn’t entirely new; calendar year 2024 also saw significant FPI exits, with October recording the highest-ever monthly outflow of ₹94,000 crore. However, even with those challenges, FPIs managed to achieve a net inflow of ₹1 lakh crore by September 2024.
Fast forward to the current year, and the situation appears more challenging. Between January and September this year, foreign investors have collectively divested ₹1.54 lakh crore from Indian equities, surpassing the previous year’s figures and indicating a deeper withdrawal of capital.
Market analysts point to several factors contributing to this exodus. Short-term concerns include ongoing tariff uncertainties. Longer-term issues involve consistently lackluster corporate earnings over multiple quarters and what many perceive as excessively high valuations for Indian stocks, diminishing their attractiveness. Furthermore, the increasing depreciation of the Indian Rupee against the dollar reduces the overall returns for foreign investors.
A recent report by Elara Capital highlights that managers of emerging market funds have notably reduced their allocation to India, bringing it down to 16.7% – the lowest level since November 2023. India’s allocation in these GEM funds had peaked at 21% in September 2024.
Instead, these funds are reportedly reallocating their investments towards China. “Active global emerging market (GEM) managers continue to be net sellers of India [stocks], consistently rotating their portfolios towards China. India’s allocation in GEM funds, which peaked at 21% in September 2024, has since sharply declined to 16.7% (its lowest since November 2023). Conversely, China’s allocation has climbed to 28.8%, indicating a clear shift in investment strategy,” states Elara’s report.
As of August 2025, global funds held approximately $390 billion in Indian assets. Alarmingly, even funds with a strong long-term conviction in India’s growth narrative have begun withdrawing capital. This marks the first such occurrence since April 2018 and “raises pertinent questions regarding the strength and sustainability of foreign investor confidence in India’s medium-term growth story,” another Elara report notes.
Domestic Markets Also See Weak Performance
The domestic markets have not fared much better, yielding subdued returns. For example, the Nifty50 index registered a 4.6% decline, dropping to 24,611.1 points on September 1, 2025, from 25,810.85 points on the same date last year.
Analysts anticipate that FPI flows will remain volatile in the foreseeable future, influenced by factors such as the proposed H1-B visa fee hike, potential 100% U.S. tariffs on branded pharmaceuticals, and a significant increase in Chinese investments in artificial intelligence.