Foreign Investors Pull ₹87,300 Crore from Indian Equities in January Amid Global Uncertainty

Domestic institutional investors step in, offsetting FPI sell-off; trade war fears, stretched valuations weigh on market.

February 3, 2025: Foreign Portfolio Investors (FPIs) Continue to Exit Indian Equities Amid Global and Domestic Headwinds

Foreign investors offloaded ₹87,374 crore worth of Indian equities in January 2025, marking the second-largest monthly withdrawal in recent years. Despite this massive sell-off, domestic institutional investors (DIIs) stepped in, injecting ₹86,591 crore into the markets and preventing a sharper decline.

Also Read: Sensex Plunges 700 Points as Trump Tariffs Spark Global Market Fears

Key Drivers Behind FPI Outflows

Also Read: Rupee Hits All-Time Low at 87.29 Amid Trump Tariffs, Global Trade War Fears Intensify

1. Global Liquidity Concerns:
   Rising US bond yields, a strengthening US dollar, and concerns about liquidity tightening globally contributed to foreign investors pulling out funds from Indian equities.
2. Donald Trump’s Tariff Policy:
   US President Donald Trump’s sweeping tariffs on major trade partners like Canada, Mexico, and China have created global market volatility, forcing investors to rebalance their portfolios.
3. Attractive Chinese Valuations:
   The recovery in China’s stock market has attracted FPIs, as Chinese equities are trading at significantly lower valuations compared to Indian stocks.
4. Domestic Challenges:
   Stretched valuations in small- and mid-cap stocks, along with weak Q3 corporate earnings, have raised concerns, particularly in sectors like technology and financials.

Market Impact

Also Read: Trump’s Tariff Storm: Europe Next as Trade War Intensifies with Canada, China, and Mexico

Despite efforts by DIIs to absorb the selling pressure, the Nifty 50 and Sensex ended January with losses of over 0.5%, marking the fourth consecutive month of declines—the first time in 23 years. Mid- and small-cap indices faced the brunt of the sell-off, with the Nifty Small Cap 100 tumbling 10% and the Nifty Midcap 100 dropping 6.10%.

New Tax Proposals Add Pressure

The Union Budget 2025 proposed an increase in the tax rate on long-term capital gains (LTCG) for FPIs, raising it from 10% to 12.5%. This follows last year’s hike on listed equity shares and mutual funds.

The Road Ahead

With the US Dollar Index surging to 109.88 and further tariff threats from the US on European imports, experts predict continued volatility. Rising protectionism and inflationary fears could also disrupt global trade and investment flows.

Puneet Sharma, CEO of Whitespace Alpha, commented, “Uncertainty surrounding President Trump’s policies, including tariffs and tax reforms, has cast a shadow over emerging markets like India. Rising protectionism could disrupt supply chains, keeping markets on edge.”

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Tags:

Indian Stock Market, FPI Outflows, Domestic Institutional Investors, Donald Trump Tariffs, Global Liquidity, Nifty, Sensex, Union Budget 2025, Long-Term Capital Gains Tax, Emerging Markets