FPI outflows: Are foreign investors losing confidence in Indian markets?

Dalal Street is on the edge, with the Nifty 50 down by 7% since January. But the bleeding doesn’t stop there: The number of registered FPIs declined by 32 to 11,729 in January from 11,761 in December, according to the Securities and Exchange Board of India’s (Sebi) latest data—the first monthly drop in a year. This contrasts sharply with December’s addition of 91 new FPIs and the 11-month average of 52 new registrations. Interestingly, even during October’s record ₹94,017 crore FPI outflow, their count increased by 65.

So, does this signal a worrying erosion of India’s appeal to global investors?

To be sure, the decline does not necessarily indicate a loss of India’s appeal to global investors. Instead, it suggests a strategic reshuffling, with short-term investors exiting and long-term investors increasing their positions. 

Experts view this as a transition rather than a crisis. Anand K. Rathi, co-founder of MIRA Money, believes that the investors who exited were never deeply committed in the first place. “Many of these FPIs had marginal allocations,” Rathi explained. “What we’re left with are those who see real, long-term value. A shrinking number of active FPIs isn’t necessarily a red flag—it could mean we’re moving towards more serious, committed investors rather than speculative capital.”

Trivesh D., chief operating officer at Tradejini, supports this view, stating: “This is likely a phase of profit booking, not a loss of confidence. Indian markets have yielded good returns in the last four years, and some investors will hence want to book their profits.” 

However, he added that the next big trigger could be from the year-end numbers, which will give more indication of the overall business scenario and the direction for the future.

New players, more confidence

Despite recent fluctuations, experts maintain that India remains a compelling investment destination. They believe the recent decline in the FPI count is unlikely to persist. Data corroborates these views. So far this fiscal year (till January), 510 new overseas investors have entered the Indian stock market—a substantial jump from 138 and 473 in the previous two fiscals. This is the highest addition since 2021-22, when 633 new FPIs were added, suggesting renewed confidence in India’s growth potential. 

“This is just the beginning,” said Rathi. “I wouldn’t be surprised if the FPI registration numbers reach triple digits in the next couple of years. FPI registrations will continue to rise as new registrations happen at an accelerated pace.”

Highlighting the key factors drawing new investors, Trivesh noted that the steady influx of new registrations contradicts the idea that foreign investors are exiting the Indian market. “This demonstrates unequivocally that opportunities are still seen by international investors. They have been drawn in large part by a strong initial public offering pipeline and strong market momentum. India’s appeal as an investment destination has also been strengthened by Sebi’s relaxed regulations for FPIs, making it easier for foreign investors to enter the market.”

Trivesh explained further that for the first time, FPIs have been able to pull out funds from India without causing a catastrophic market fall. “That’s a significant positive—it gives them the confidence that they can re-enter and exit more smoothly than in previous decades.” 

During the last five months, FPIs sold off over ₹2 trillion of equities, while domestic investors bought over ₹4 trillion. “Historically, an FPI sell-off used to mean the market would crumble. But over the past three to four years, even with FPI outflows, the market has held strong and continued its upward trend,” he added.

“Post covid, FPIs have recognized that the Indian market now offers easier entry and exit options compared to the past. This shift is definitely encouraging for them, and I believe we’ll see many of them returning in the coming months.”