Foreign Investors Withdraw ₹4,285 Crore from Indian Equities Amid High Valuations and Earnings Concerns

In the first three trading days of January, foreign portfolio investors (FPIs) pulled out ₹4,285 crore from Indian equities, driven by concerns over the upcoming third-quarter earnings season and the steep valuations of domestic stocks.
This shift in sentiment comes after FPIs invested ₹15,446 crore in December, as per depository data. The outflow highlights a growing caution among investors navigating both global and domestic challenges.
“FPIs are likely to continue selling as long as the dollar remains strong and US bond yields offer attractive returns. The dollar index at around 109 and the 10-year bond yield above 4.5% are significant deterrents to FPI flows,” said V K Vijayakumar, Chief Investment Strategist at Geojit Financial Services.
Apprehensions over the Q3FY25 earnings season, coupled with global uncertainties, have dampened investor sentiment. “Investors have adopted a cautious stance ahead of the Q3 earnings season, contributing to subdued market sentiment. Additionally, apprehensions surrounding global economic policies and their implications have further added to the cautious approach,” noted Himanshu Srivastava, Associate Director at Morningstar Investment Research India.
The depreciating rupee against the dollar has also weighed heavily on FPI sentiment. A weaker rupee increases currency risks, making Indian investments less appealing. Meanwhile, the US Federal Reserve’s stance of limited rate cuts in 2025 has done little to boost investor confidence.
Domestically, the rich valuations of Indian equities have deterred foreign investors. “FPIs are selling primarily in the secondary market due to high valuations. However, they remain active investors in the primary market, where valuations are more reasonable,” Vijayakumar added.
The overall trend reflects a sharp contrast to 2023, when net FPI inflows stood at ₹1.71 lakh crore, buoyed by optimism about India’s economic fundamentals. In 2024, however, net inflows plummeted to just ₹427 crore, as FPIs scaled back investments amid persistent volatility and rich valuations.
This cautious approach underlines the challenges facing Indian markets as they grapple with global economic headwinds and investor sentiment shifts.