Foreign Investors Withdraw ₹23,710 Crore from Indian Equities in February
In a tumultuous turn of events, foreign investors have recently pulled out a staggering ₹23,710 crore from the Indian equity markets, marking a significant blow to the financial landscape. This massive exodus has pushed total outflows past ₹1 lakh crore in 2025, amid escalating global trade tensions that have cast a shadow of uncertainty over the investment climate. The repercussions of this unprecedented move are reverberating across the market, with experts and analysts closely monitoring the situation for potential implications on the economy and investor sentiment.
Market Turbulence and Global Factors
The prevailing economic climate has been deeply influenced by a confluence of factors, both domestic and international, that have contributed to the recent wave of foreign disinvestment in Indian equities. Heightened global trade tensions, spurred by the specter of new tariffs imposed by US President Donald Trump on steel and aluminum imports, have triggered a wave of uncertainty among investors. Himanshu Srivastava, Associate Director-Manager Research at Morningstar Investment Research India, pointed out that these developments have reignited fears of a potential global trade war, prompting foreign portfolio investors (FPIs) to reassess their exposure to emerging markets, including India.
In the aftermath of Trump’s victory in the US presidential elections, the American market has emerged as a magnet for capital inflows from around the world. However, China has recently emerged as a prominent destination for portfolio flows, offering a compelling alternative to investors seeking growth opportunities. V K Vijayakumar, Chief Investment Strategist at Geojit Financial Services, highlighted the Chinese president’s initiatives with prominent businessmen as a catalyst for optimism regarding a potential growth recovery in China. Despite the allure of Chinese stocks being relatively inexpensive, Vijayakumar cautioned that the ‘Sell India, Buy China’ trend may be short-lived, given the structural challenges facing the Chinese economy.
Domestic Challenges and Investor Sentiment
On the domestic front, lackluster corporate earnings and the sustained depreciation of the Indian rupee to multi-year lows have further dampened the appeal of Indian assets in the eyes of foreign investors. This combination of unfavorable economic indicators has exacerbated the existing concerns surrounding the Indian market, contributing to the substantial outflows witnessed in recent months. The overall sentiment among investors appears to be cautious, with FPIs adopting a more conservative approach to their investments in Indian equities.
The withdrawal of funds from the debt market has also underscored the apprehensive stance adopted by foreign investors towards Indian financial instruments. Notably, FPIs have withdrawn significant amounts from both the debt general limit and the debt voluntary retention route, reflecting a broader trend of risk aversion and strategic reallocation of investments. This cautious approach stands in stark contrast to the optimistic inflows witnessed in 2023, when India’s robust economic fundamentals attracted a record ₹1.71 lakh crore in net investments.
As the financial landscape continues to evolve in response to global and domestic factors, the outlook for FPI investments in India remains uncertain. Experts such as V K Vijayakumar foresee a potential revival of FPI interest in India once economic growth and corporate earnings show signs of recovery, a development that may materialize in the coming months. The intricate interplay of geopolitical dynamics, economic indicators, and investor sentiment will shape the future trajectory of foreign investments in Indian equities, underscoring the complex and interconnected nature of the global financial system.