Markets See ₹10,016 Cr FPI Outflow Amid China Shift. What caused the Exit?
- 21st May 2025
- 12:00:00 AM
- 3 min read
Mumbai, May 21 – Foreign portfolio investors (FPIs) withdrew ₹10,016 crore from Indian equities on Tuesday, marking the largest single-day outflow since February. This move came amid a broader recalibration of global investment strategies, with increasing attention on China following fresh policy stimuli and easing trade tensions.
While overseas investors trimmed their exposure sharply, domestic institutional investors (DIIs) provided support by injecting ₹6,738 crore into the markets, partially offsetting the impact.
What Prompted the ₹10,016 Cr FPI Exit
The sell-off by foreign investors comes on the back of several global developments influencing risk appetite and capital allocation. A key event was Moody’s recent downgrade of the U.S. sovereign credit rating from Aaa to Aa1, which triggered a rise in U.S. Treasury yields. Higher bond yields have made fixed-income instruments more attractive relative to equities, leading to some profit-booking in emerging markets, including India.
Concurrently, renewed concerns around global trade dynamics, especially the ongoing U.S.-China negotiations, have prompted investors to reassess their regional equity positions. China’s latest round of fiscal and monetary stimulus, including a cut in its benchmark lending rates by the People’s Bank of China, has improved the attractiveness of Chinese assets, drawing investor interest away from India.
Between May 1 and May 16, FPIs had invested ₹23,778 crore into Indian equities, indicating a strong inflow earlier in the month. However, the reversal on May 20 signals caution as global investors respond to shifting macroeconomic signals and comparative valuation changes.
DIIs Offset Outflows
Despite the sizeable FPI outflow, the domestic investor base has remained resilient. DIIs, comprising mutual funds, insurance companies, and other institutional players, have continued to deploy capital actively, contributing ₹6,738 crore in Tuesday’s session. This trend reflects growing confidence in India’s underlying economic fundamentals and corporate earnings prospects.
Domestic buying has historically cushioned the market impact during periods of foreign selling, providing a stabilising effect amid external volatility.
What This Means for India
The recent FPI withdrawal raises questions about the near-term trajectory for Indian equities. While profit-taking is not unusual following a phase of strong inflows and market gains, sustained foreign selling could weigh on market sentiment and liquidity.
However, India’s robust domestic demand drivers, ongoing reforms, and a relatively diversified investor base provide important buffers. The government’s continued focus on infrastructure spending, digital economy growth, and export competitiveness also support a positive medium-to-long-term outlook.
That said, markets will remain sensitive to global developments, particularly U.S. monetary policy, geopolitical tensions, and the outcome of U.S.-China trade relations. Any prolonged divergence in capital flows favoring China could pose headwinds for India’s equity markets.
Bottomline
Tuesday’s ₹10,016 crore FPI outflow underscores the evolving landscape of global capital flows amid changing risk perceptions and regional policy shifts. While overseas investors momentarily reduced exposure to Indian equities, the strength of domestic institutional participation remains a key factor in maintaining market stability.
Going forward, investors will closely monitor global economic indicators and policy moves to gauge the sustainability of capital inflows into India, alongside China’s growing role as a preferred investment destination in Asia.
PL Capital Desk
Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. It is based on several secondary sources on the internet and is subject to changes. Please consult an expert before making related decisions.
