FPI outflows from Indian stock market highest in Asia, yet Nifty 50 has rallied over 5%. What’s driving the resilience?

Foreign portfolio investors (FPIs), typically seen as market movers, had a surprisingly muted impact on Indian equities in 2025, despite pulling out substantial funds from the exchanges. Over the past six months, including June, they have alternated between buying and selling but largely chose to stay on the sidelines in most months.

So far in 2025, FPIs have pulled out Indian equities worth $10.6 billion, according to Bloomberg data—the highest outflows among Asian peers. Taiwanese stocks ranked second in overseas investor sell-offs, with outflows of $10.04 billion, followed by South Korea, Indonesia, and Malaysia.

Despite the record FPI sell-off, the Indian stock market has managed to outperform most of its global and Asian peers. The Nifty 50 and Sensex have gained over 5% year-to-date (YTD), while the broader markets have also delivered healthy returns, with the Nifty Midcap 100 and Nifty Smallcap 100 indices gaining over 2% during the same period.

The majority of the overseas outflows were completely offset by domestic institutional investors, primarily driven by mutual funds, which have been receiving a steady inflow of funds from retail investors. In recent years, these investors have increasingly shifted from traditional savings to equities as a way to participate in India's growth story. 

DIIs have poured over $36.1 billion into Indian equities so far in 2025, the second-highest annual inflow since 2007, trailing only 2024. The latest six-month inflow also marks the strongest half-yearly investment since records began.

For context, after purchasing equities worth $2.39 billion in May, FPIs turned sellers in early June, offloading Indian equities worth $0.59 billion in the cash market so far. However, DIIs continue to acquire stocks aggressively, buying $5.32 billion worth of local equities, which is 11 times higher than the FPI outflows.

Looking broadly, DIIs have invested USD 195 billion over the past decade, more than 3.7 times the FII inflows of USD 53 billion during the same period. Meanwhile, the steady inflows have also altered ownership dynamics, with DII holdings exceeding FII holdings in Nifty-500 companies for the first time in Q4FY25.

Market experts believe that the DII inflows continue to strengthen further amid sustained inflows from local investors. The mutual fund AUM crossed the ₹70 lakh crore for the first time in May.

Will FPI continue to pull funds from Indian stock market?

The sustainability of FPI outflows, according to analysts, remains uncertain amid ongoing global trade tensions, rising geopolitical risks, the recovery in the Chinese economy, and uncertainty over U.S. Federal Reserve rate cuts.

Experts believe that near-term FPI inflows could likely be impacted by escalating Israel-Iran tensions, which have led to a sharp uptick in crude oil prices. This could hurt their sentiment, as elevated oil prices may pose challenges to the Indian economy and corporate profitability. FPIs were already cautious due to India’s high valuations compared to Asian peers, if tensions escalate further, they might pull out more funds from Asia’s third-largest economy.

Additionally, the evolving trade dynamics between the U.S. and China could influence flows, as Chinese stocks are comparatively trading at more reasonable valuations than Indian equities. The U.S. Federal Reserve’s expected decision to hold interest rates steady in the upcoming meeting may also affect FPI sentiment, according to market experts.

Disclaimer: The views and recommendations given in this article are those of individual analysts. These do not represent the views of Mint. We advise investors to check with certified experts before taking any investment decisions.