Winning Bizness Desk

Mumbai. Foreign portfolio investors continued to pare their exposure to Indian equities in December, extending a year-long selling streak despite steady support from domestic institutions. Data from NSDL shows that FPIs sold shares worth Rs 17,955 crore, or about $2 billion, in the first 12 days of December alone. With this, total net outflows by foreign investors in 2025 have climbed to nearly Rs 1.60 lakh crore, underlining persistent global risk aversion even as India’s economic growth outlook remains relatively strong.

Foreign selling gains pace in December

The latest December sell-off follows a mixed pattern seen through the year. After selling Rs 3,765 crore in November, FPIs had briefly turned buyers in October, investing Rs 14,610 crore and breaking a three-month selling run. However, that reversal proved short-lived. Between July and September, foreign investors had already pulled out heavily, withdrawing Rs 17,700 crore in July, Rs 34,990 crore in August and Rs 23,885 crore in September. The renewed December outflows suggest that global cues continue to outweigh domestic positives for overseas investors.

Why FPIs are exiting Indian markets

Market experts point to a combination of global and local factors behind the sustained selling. According to Morningstar’s Himanshu Srivastava, high interest rates in the US have reduced global liquidity and made safer, higher-yield assets more attractive. Indian equities, meanwhile, appear expensive compared with other emerging markets, offering relatively less valuation comfort. Angel One’s Vaqar Javed Khan adds that a weak rupee, year-end portfolio rebalancing and lingering economic uncertainty have further dampened sentiment.

Key triggers pushing foreign investors out include:

• Elevated US interest rates and tighter global liquidity
• Stronger preference for safer global assets
• Perception of Indian stocks being richly valued
• Ongoing portfolio rebalancing by global funds

Rupee weakness adds to investor pressure

Currency movements have played a critical role in shaping FPI behaviour this year. The rupee has fallen nearly 5 percent so far in 2025. On December 11, it slipped to an all-time low of 90.47 against the US dollar, after touching 90.43 on December 4. At the start of the year, the rupee stood at 85.70 to the dollar. This sharp depreciation erodes foreign investors’ returns, making Indian assets less attractive despite stable corporate earnings.

Domestic investors cushion market impact

Despite heavy foreign selling, the broader market impact has been limited due to strong buying by domestic institutional investors. DIIs invested Rs 39,965 crore in December, effectively offsetting FPI outflows. VK Vijayakumar of Geojit Investments notes that India’s robust growth prospects and healthy earnings outlook make sustained foreign selling difficult to maintain over the long term. He believes FPI selling pressure could ease as valuations adjust and global conditions stabilise.

What could shape flows ahead

Looking forward, market participants expect December’s FPI activity to hinge largely on two factors: signals from the US Federal Reserve on interest rate cuts and progress on a potential India-US trade agreement. Outcomes to watch include:

• Clear Fed guidance on future rate cuts
• Improvement in global risk appetite
• Movement in the rupee against the dollar
• Positive developments in India-US trade talks

If these cues turn favourable, foreign investors may gradually return. If not, volatility and selective selling could continue into the new year.