Foreign portfolio investors (FPIs) have been aggressively offloading Indian equities amid concerns over a potential U.S. economic slowdown and declining discretionary spending by global software clients. In the first two weeks of March 2025, FPIs sold $3.4 billion worth of Indian shares, with the IT sector bearing the brunt of the sell-off.
The IT sector was the hardest hit, with foreign investors dumping $800 million worth of shares, making it the top-selling sector. This was followed by $586 million in outflows from the FMCG sector and $418 million from the automobile sector, according to data from the National Securities Depository Ltd. (NSDL).
Despite the heavy selling, some sectors managed to attract FPI interest. Metals & Mining saw net inflows of $135 million, while the Media & Entertainment sector received $16 million in foreign investments.
While financial stocks remain the top sector for foreign investments, accounting for nearly one-third of FPI holdings, IT stocks now represent a reduced 9.4% share of total foreign investments. As of March 15, FPIs collectively held $722 billion in Indian equities, representing 15.3% of the market.
India has been the worst-hit emerging market in terms of foreign outflows this year. Since January 2025, FPIs have pulled $16.4 billion from Indian equities, surpassing Taiwan’s $14.8 billion in outflows during the same period.
Experts cite multiple reasons behind the sell-off, including fears of a U.S. economic slowdown, rising tariffs, and a possible shift in foreign institutional investor (FII) flows towards China.
Some believe that in the short term, FIIs may favor China over India due to policy changes and tariff adjustments. While some think that although near-term pressure persists, capital outflows from the U.S. could eventually be redirected to emerging markets, including India, especially if the current market momentum remains strong.
Despite the sharp outflows, the Nifty 50 index has rebounded nearly 5.5% this month so far, indicating some resilience in the market. However, analysts caution that any weakness in March-quarter earnings could disrupt this relief rally, potentially leading to further FPI outflows.
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