Foreign portfolio investors (FPIs) continue to be bearish on Indian markets due to various factors. The recent acceleration in sales of ₹37,823 crore in August, marks the third biggest monthly outflow this year, after January and February outflows of Rs 72,677 crore Rs 46,599 crore, respectively. Overall, in 2025, FPIs net sold Rs 1.34 lakh crores in Indian stocks.
According to market experts, besides US tariffs, elevated valuations at a time when the earnings have not been encouraging continue to impact their decision to prune stakes in the Indian market.
“FPIs are booking profits in higher USD rates and hot money is flowing to China and Korea, where stocks are cheap,” said Amit Joshi (CFA), Senior President and Chief Investment Officer (CIO) at Bajaj Allianz General Insurance, adding that it will make a comeback when things improve.
ETFs lead redemptions, India-dedicated funds join selling
The bearishness is so intense, even India-dedicated funds are selling out with continued outflows in the last five weeks, said Garima Kapoor, economist and executive vice president at Elara Securities, which has an India dedicated equity fund registered as FPI.
“They are selling and sitting on cash to deploy at better prices,” Kapoor said. The pace of outflows slowed this week to $78mn, compared with $387mn in the prior week and $700mn the week before.
Notably, all of this week’s redemptions came from ETFs, which saw $220 million outflow, while long-only funds posted their first inflow in seven weeks, to the tune of $140 million, led by HSBC Global Investment Funds and Ashoka WhiteOak ESG Funds.
The current outflow that began July 2025 is so far total $1.9 billion, much of which has been redirected to China.
Meanwhile, global high-yield bond funds saw their first outflow in 17 weeks—a modest $127mn. “Previous redemption phases in this segment November to December 2024 and March to April 2025 coincided with sharp corrections across emerging markets, making such moves an early signal of broader risk-off sentiment,” a research report from Elara Capital said.
Domestic inflows provide a cushion
The continued sell-off in India is largely offset by domestic institutional investors including the mutual funds (MFs), pension funds and insurance firms, where the MFs are collecting a steady supply of fresh funds from retail term-investments (SIPs).
On September 1, the Bombay Stock Exchange’s Sensex closed 554 points higher (0.8%) at 80,364, and the National Stocks Exchange’s Nifty gained 198 points (0.8%) to end at 24,625. Auto stocks led the rally, with the Nifty Auto index rising 3%.
India’s Q1 GDP growth came in at a 5-quarter high of 7.8%, while August Manufacturing PMI surged to a 17-year peak. “The domestic faith in India’s long-term growth is unshakeable,” said the chief executive of a mutual fund. FPIs have other considerations, he added.