FPIs continue to snub consumption, even after budget incentives

This exodus is part of a broader $16 billion withdrawal by FPIs from Indian markets in 2025—the largest among emerging economies this year. In February alone, FPIs withdrew ₹34,574 crore. Analysts attribute this to high valuations, weak demand, and a global reallocation of funds to markets like China and US treasuries, which offer better returns amid a depreciating rupee.

 

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Defy consumption hopes

Consumption stocks are still a no-go for these overseas investors. On 1 February 2025, the Nifty FMCG index jumped over 3% after finance minister Nirmala Sitharaman announced income tax relief measures, including a ₹12 lakh exemption under the new tax regime, to boost consumption. However, these gains proved fleeting, and consumption stocks remain unappealing to overseas investors. Since then, the index has declined by 8%, underperforming the Nifty 50, which fell by 4%.

“It’s not like the FMCG sector will start showing FPI inflow immediately after the Union Budget; it will take time for the impact to be visible,” said Kranthi Bathini, director of equity strategy at WealthMills Securities. He added that high valuations have made many FMCG stocks less appealing.

“FMCG saw a tremendous growth in the last 2-3 years because of the consumption narrative, hence the valuation froth,” said Anchal Kansal, research analyst at Green Portfolio, Sebi registered PMS.

“The PE was trading at 51x in Sept 2024, all time high, despite the 10-year median PE being 42x. Now you might say that correction was evident but no one can really time the market. FPIs have been reallocating their money to China and US treasury, because of one, better returns and second, due to depreciation of rupee,” she added. The FMCG index’s current one-year forward P/E stands at 32.5x, slightly lower than its 5-year median P/E of 33.5x.

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Another consumer-centric sector, consumer durables, experienced ₹2,290 crore of FPI outflows from December 2024.

“Foreign portfolio investors have been consistent net sellers over the past fortnight, exiting heavily from Indian markets. While FMCG stocks have already been impacted, consumer durables are now facing the heat as well. With significant FPI holdings in this sector, we are witnessing a continued exodus,” said Bathini.

Approximately one-fourth of the total FPI outflows in February came from consumer durables and FMCG sectors.

Still reeling under pressure

The financial services sector continues to bear the brunt of FPI selling, with highest outflows of ₹6,991 crore in February.

“The financial sector, specifically, is facing the brunt owing to fears about weakening US growth and trade tensions around the world,” said Trivesh D., chief operating officer at Tradejini. With a combination of factors, the financial sector is also losing appeal in anticipation of potential pressures on profitability. RBI data reveals that while lending grew by 11% year-on-year, deposit growth lagged at 10.3%, pushing the credit-to-deposit ratio (CDR) to 79.1%. “A high CDR indicates liquidity risks and potential profitability pressures for banks,” explained Kansal. “With household debt at an all-time high, even a minor interest rate hike could trigger defaults, making the sector less appealing to FPIs.”

Other sectors facing significant outflows include capital goods ( ₹4,464 crore), automobiles and auto components ( ₹3,969 crore), and construction materials ( ₹3,844 crore). A Kotak Institutional Equities, in a March 4 report, highlighted that while growth expectations for capital goods remain high at over 14% for the next 20 years, the sector’s valuations still pose risks.

“FPI selling across sectors is largely due to near-term concerns, even though disposable incomes are set to rise from May onwards. With two more months to go, investors seem to be taking a cautious approach. Concerns over the corporate earnings may have led FPIs leading to profit booking and a shift towards areas with better growth potential,” Trivesh added.

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Bright spots

Amid the gloom, the telecom and IT sectors have emerged as bright spots, attracting FPI inflows of ₹7,998 crore and ₹805 crore, respectively, during the month. The telecom sector is riding the 5G wave, while IT benefits from declining US interest rates.

“The IT and telecom sectors represent a long-term structural shift,” said Kansal. “With 97% of India’s IT revenue coming from overseas, the sector is well-positioned to capitalize on global trends. We are particularly optimistic about the 5G theme and are witnessing strong growth in order books.”

According to Trivesh, “increased demand for digital services, 5G rollouts, and technology-driven solutions are supporting the telecom and IT sectors. Such industries can be attractive to FPIs looking to manage risks as they benefit from India’s story of long-term growth.”