FII outflows: 2025 the worst year for foreign investment as overseas investors sell shares worth over ₹1.5 lakh crore

Foreign institutional investors (FIIs) began selling Indian stocks in October 2024, and the trend continued to accelerate in the following months, with only brief periods of buying. As a result, 2025 has become the worst year on record for foreign investment in Indian equity markets.

FIIs have so far this year sold record shares worth ₹1,59,779 crore, data compiled by the National Securities Depository Limited (NSDL) showed.

FIIs sold shares in eight out of 12 months of 2025, with January being the worst month when they sold shares worth ₹78,027 crore, while May was the best month when they bought stocks worth ₹19,860 crore.

FPI ownership at 15-year low

With persistent selling by FIIs, their ownership in Indian equity markets fell to the lowest level in 15 years, according to a report by the National Stock Exchange.

Foreign portfolio investor (FPI) ownership in NSE-listed companies fell further to 16.9% in the second quarter of the current financial year, marking the lowest level in over 15 years, according to the latest market ownership data. The selling was broad-based, as foreign investors’ stake in NIFTY50 and NIFTY500 also slipped to over 13-year lows of 24.1% and 18%, respectively.

Annual FPI investment trend

In sharp contrast, domestic investors continued to absorb the sustained foreign outflows. Domestic mutual funds (DMFs) saw their share climb to a record 10.9%, supported by persistent systematic investment plan (SIP) inflows and steady equity buying. The September quarter marked the ninth straight quarter of record mutual fund ownership of India Inc. Overall, domestic institutional investors (DIIs) outpaced FPIs for the fourth consecutive quarter, a streak last seen in 2003.

Direct retail ownership held broadly steady at 9.6%, but when combined with mutual fund holdings, individuals now control 18.75% of the market—the highest in 22 years. Household equity wealth dipped by roughly ₹2.6 lakh crore in Q2FY26, but cumulative gains since April 2020 remain robust at ₹53 lakh crore, taking total household equity holdings to about ₹84 lakh crore.

On sector positioning, foreign investors retained an overweight stance on financials, turned incrementally positive on communication services, and remained cautious on consumer staples, energy, materials, and industrials. While mutual funds stayed overweight on large-cap financials and mid-tier consumer discretionary, they turned more bearish on consumer staples and maintained a negative view on commodity sectors, as per the NSE report.

Meanwhile, HSBC Global Investment Research said that Indian equities are poised to regain momentum in 2026, with the worst of earnings downgrades now behind.

“Valuations have normalised, and India’s premium over emerging markets is back to typical levels,” the HSBC report said, adding that foreign flows to Indian equities could revive as global investors seek diversification beyond Asia’s AI-driven trade.

India has been a “funding market” for Asia’s AI boom over the past year, prompting a rotation of capital from Indian stocks into Korea and Taiwan. Between September 2024 and November 2025, FPIs withdrew nearly $28 billion, pushing foreign ownership to a 14-year low and making India the second-largest underweight in global emerging market portfolios, HSBC said.

HSBC noted that this sharp derating leaves “ample headroom” for foreign investors to rebuild positions. Only a quarter of global funds currently hold an overweight view on India.

While domestic flows have become a strong stabilising force, HSBC said that a renewed pickup in foreign inflows will be critical for fuelling the next major bull run in Indian markets.