FPI Selloff: Foreign investors remain net sellers in March, but pace of selling eases. What’s in store ahead?

Stock market today: Indian markets have made a strong recovery in the last few trading sessions, withstanding weak global sentiment amid escalating trade tensions and signs of a weakening US economy. Domestic stocks are attempting to recover from February’s rout, which sent the Nifty 50 to log five consecutive months of decline for the first time in 29 years.

The recovery has been largely driven by metals and oil & gas stocks, supported by falling crude oil prices and a weakening US dollar index. The weakening of the world’s reserve currency has also slowed down FPI selling in emerging markets, including India, which has further aided the recovery of the world’s fifth-largest stock market.

Moreover, the prolonged sell-off in domestic equities, which has made India the worst-performing major market since late September, has brought valuations to more reasonable levels, allowing value buyers to step in, according to market experts.

Selling persists in March but shows signs of easing

Foreign portfolio investors (FPIs), the major force behind the underperformance of Indian markets, have slowed down their selling intensity in March, but they remain net sellers. So far this month, they have pulled out another ₹24,753 crore, bringing total equity selling in CY 2025 to ₹1,37,354 crore from Indian stocks through exchanges.

Overseas investors have been aggressively, pulling funds since October, causing the Nifty 50 and Sensex to tumble by 15% from their record highs. Domestic institutional investors (DIIs), on the other hand, have been trying to absorb the selling pressure from FPIs, but this has not been enough to help markets bounce back meaningfully.

Experts noted that, in addition to FPIs, family offices, high-net-worth individuals (HNIs), and retail investors have also begun exiting the market to protect their margins, leaving DIIs to bear the full burden of the sell-off.

Will FPIs return to India? 

Looking ahead, analysts believe that the drop in the US Dollar index will limit inflows back to the U.S. markets. Global brokerage firm Jefferies, in its latest report, stated that historically, India tends to outperform other emerging markets within 90-180 days following a period of underperformance.

It noted that the country’s valuation premium is now closer to average levels, well below its 2024 peak. With the dollar index down 6% from its peak, FPI flows could potentially reverse, as Jefferies’ FPI ownership tracker indicates that India’s positioning among EM funds is at a decade low.

Meanwhile, near-term positives, such as an economic uptick and liquidity easing, may drive a short-term market rebound, it added.

Dr V K Vijayakumar, Chief Investment Strategist, Geojit Financial Services, said, “The trend of FII selling in India continued in early March, too. But there are signs of a slight decline in intensity in the last couple of days. There is big buying in Chinese stocks triggered by attractive valuations and expectations from the recent positive initiatives by the Chinese government towards their big businesses.”

The rally in Chinese stocks has resulted in the Hang Seng Index performing exceedingly well, with a YTD return of 23.48% compared to a -5% YTD return in the Nifty. Vijayakumar believes that this rally is more likely to be a short-term cyclical trade since Chinese corporate earnings have consistently disappointed since 2008.

“The recent decline in the dollar index will limit the fund flows to the US. Trump’s tariff threats have changed the focus of investors choices towards domestic consumption-driven sectors like financials, telecom, hotels, and aviation and away from externally linked sectors. This trend is volatile like Trump’s tariff policy,” he further added.

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.