Why Foreign Investors Are Exiting Indian Stock Markets — But Markets Are Still Rising

Foreign Portfolio Investors (FPIs), often known as key market drivers, have taken a cautious stance toward Indian equities in 2025. Despite pulling out a large amount — over US$10.6 billion so far this year — their actions have had little impact on market performance. In fact, Indian markets have stayed strong, showing steady growth. 

Taiwan ranked second in foreign outflows, with US$10.04 billion pulled out, followed by South Korea, Indonesia, and Malaysia. Yet, India’s benchmark indices, the Nifty 50 and Sensex, have gained over 5% year-to-date (YTD). Midcap and smallcap stocks have also performed well, with Nifty Midcap 100 and Nifty Smallcap 100 rising more than 2%. 

What is Behind the Stellar Performance of India’s Stock Market? 

You might ask: what is the reason behind this resilience? Well, domestic Institutional Investors (DIIs), such as mutual funds, have stepped in strongly. These investors, supported by retail participation, have moved away from traditional savings and invested in Indian equities to benefit from the country’s economic growth. 

So far in 2025, DIIs have invested over US$36.1 billion, the second highest ever after 2024. This marks the strongest six-month inflow since data tracking began. In June alone, DIIs bought US$5.32 billion worth of Indian stocks, while FPIs sold only US$0.59 billion — DIIs’ investment was nearly 11 times higher. 

How Has Increasing DII Investment Reshaped Indian Stock Markets? 

This steady inflow from DIIs is reshaping market dynamics. For the first time, DII ownership in Nifty-500 companies has exceeded FPI holdings, showing the rising power of local investors. Over the past decade, DIIs have invested US$195 billion, more than 3.7 times the FPI inflow of US$53 billion. 

Will FPIs Keep Selling? 

As per news reports, the future of FPI activity remains uncertain. Global tensions — especially between Israel and Iran, rising crude oil prices, and the uncertain path of U.S. interest rates — could make foreign investors cautious. 

India’s relatively high stock valuations compared to China and other Asian markets are also a concern. If oil prices stay high or geopolitical tensions rise, there is a risk of a continuous outflow of investment by FPIs. 

Read more: Nifty Realty Index Jumps 2% in Quiet Market as Rate Cut Boosts Real Estate Stocks 

Conclusion 

Even as foreign investors pull funds, Indian stock markets remain steady, thanks to strong support from domestic mutual funds and retail investors. While global events may influence FPI activity in the coming months, India’s growing base of local investors continues to be a major pillar of market strength.  

Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. This does not constitute a personal recommendation/investment advice. It does not aim to influence any individual or entity to make investment decisions. Recipients should conduct their own research and assessments to form an independent opinion about investment decisions. 

Investments in the securities market are subject to market risks. Read all the related documents carefully before investing.