Foreign Institutional Investors (FIIs) have played a crucial role in developing India’s capital markets. Their inflows have supported the equity market, enhanced liquidity, and signalled confidence in India's long-term growth story. However, recent data shows a reversal of this trend, with FIIs pulling significant capital from Indian equities, especially in the latter half of FY25.
This blog analyses the recent FII outflows, their underlying reasons, market impact, and what lies ahead.
Table of Contents:
The data in the table below clearly illustrates a significant shift in FII sentiment towards Indian equities.
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Key Observations:
- Record Outflow: October 2024 witnessed an unprecedented net FII sell-off of ₹94,017 crore, the highest monthly outflow ever recorded. This surpassed the previous record of ~₹61,973 crore during the March 2020 COVID-19 market crash.
- Sustained Selling: Significant outflows were also seen in May 2024 (₹25,586 crore) and continued into early FY25 (Jan-Apr 2025), albeit at a slightly moderated pace initially.
- Domestic Counterbalance: Notably, Domestic Institutional Investors (DIIs) played a crucial stabilising role, absorbing a large chunk of this selling pressure with over ₹1 lakh crore in net buying during October 2024 alone.
Several interconnected factors contribute to this FII exit from Indian equities:
1. Valuation Fatigue in Indian Equities
Interpretation:
Foreign institutional money flows are highly sensitive to valuation. Indian equities have significantly outperformed other emerging market peers since 2023, making them relatively expensive. FIIs reallocated to cheaper markets like China, which traded at ~10x PE.
2. Global Rate Environment and Dollar Dynamics
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US Fed Rate: 5.5% (highest since 2007)
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US 10-Year Treasury Yield: ~4.6% (near risk-free return)
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Dollar Index (DXY): 105, strengthening dollar and outflows from risk assets
Why It Matters:
The higher US yields offer an attractive alternative to Emerging Market equities. The strengthening of the USD also makes repatriated funds more valuable, promoting exits. Historical patterns suggest that whenever the Fed funds rate > 5%, emerging markets like India see capital outflows unless there's a strong growth differential.
3. Emerging Market Rotation: China's Re-Entry
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China's Q1 2025 GDP Surprise: +5.3% Y-o-Y
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Stimulus Measures: Rate cut, property sector relief, tech reopening
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Shanghai Composite: +12% Q1 2025 rally
Outcome:
FIIs shifted allocations from expensive Indian Markets to rebounding China. This isn't a negative reflection on India but a tactical shift based on relative valuation and short-term return expectations from China.
4. Domestic Economic Concerns
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Corporate Earnings (Q2 FY25): Aggregate PAT growth slowed to 3.6% Y-o-Y
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Rupee Weakness: ₹83.5/USD (import cost pressure)
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Retail Inflation: 5.49% (above RBI's comfort zone)
Investor Interpretation:
A slowing earnings cycle, inflationary pressures, and currency depreciation reduce the real return on Indian equities, especially for dollar-denominated portfolios.
Foreign Institutional Investors (FIIs) have recently reduced their stakes in several Indian companies. Here's a look at ten stocks that saw a notable decrease in FII holdings, along with their market details:
1. Embassy Developments Ltd.
- Share Price: ₹100.39
- Market Cap: ₹11,870.93 Cr
- Change in FII Holding: -14.22%
Explore Embassy Developments share price, key financials, and in-depth stock analysis here.
2. SpiceJet Ltd.
- Share Price: ₹44.72
- Market Cap: ₹5,733.05 Cr
- Change in FII Holding: -11.05%
Track SpiceJet current share price, performance metrics, and detailed stock insights.
3. Mahanagar Gas Ltd.
- Share Price: ₹1,277.50
- Market Cap: ₹12,618.86 Cr
- Change in FII Holding: -8.45%
Check the live share price of Mahanagar Gas, along with its financial statements and complete analysis.
4. Avanti Feeds Ltd.
- Share Price: ₹799.65
- Market Cap: ₹10,894.88 Cr
- Change in FII Holding: -8.05%
Get a comprehensive view of Avanti Feeds —from share price updates to financial ratios and stock fundamentals.
5. TAC Infosec Ltd.
- Share Price: ₹1,293.75
- Market Cap: ₹1,355.80 Cr
- Change in FII Holding: -6.03%
Monitor TAC Infosec stock price, latest financials, and a full breakdown of its market performance.
6. Central Depository Services (India) Ltd. (CDSL)
- Share Price: ₹1,168.00
- Market Cap: ₹24,411.20 Cr
- Change in FII Holding: -5.81%
Review CDSL share price, financial data, and deep-dive stock analysis in one place.
7. Indraprastha Gas Ltd.
- Share Price: ₹174.76
- Market Cap: ₹24,466.43 Cr
- Change in FII Holding: -5.24%
Stay updated on Indraprastha Gas share price, financial health, and investment insights.
8. TBO Tek Ltd.
- Share Price: ₹1,073.90
- Market Cap: ₹11,661.24 Cr
- Change in FII Holding: -5.01%
Analyse TBO Tek stock price with real-time updates, financial highlights, and valuation insights.
9. Algoquant Fintech Ltd.
- Share Price: ₹871.90
- Market Cap: ₹1,361.60 Cr
- Change in FII Holding: -4.80%
Track Algoquant Fintech share price movements, financial indicators, and full investment analysis.
10. AAVAS Financiers Ltd.
- Share Price: ₹2,028.15
- Market Cap: ₹16,053.55 Cr
- Change in FII Holding: -4.30%
Find everything you need to know about AAVAS Financiers —from share price to financials and stock review.
The 10 stocks listed above provide a snapshot of companies where FIIs significantly reduced their holdings recently. However, many other stocks were also affected.
Want to find the complete list of stocks where FII holdings decreased between specific periods?
Use our powerful Ticker's Screener tool! You can generate this list directly by applying specific filters. For example, to find stocks where FII holding decreased in latest quarter from previous one, simply use the query:
FII Holding Q1+3 < FII Holding Q2
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FII selling was concentrated in sectors that had previously rallied significantly but recently showed signs of slowing growth or faced specific challenges:
- Banking: FIIs reduced holdings in banks like Axis Bank (-3.38%) and Bandhan Bank (-3.5%), likely reflecting concerns over slowing credit growth observed in recent quarters.
- Information Technology (IT): Selling occurred in IT stocks such as KPIT Technologies (-3.6%) and Cyient DLM (-4.12%), aligning with worries about demand deferrals and project slowdowns impacting the sector.
- Consumer Products: Stocks like Shoppers Stop (-3.76%) saw FII exits, potentially due to margin pressures driven by inflation affecting costs and consumer spending.
FIIs appeared to be trimming exposure in sectors where earnings momentum was weakening after strong post-COVID performance, reacting to specific headwinds like slowing credit growth, deferred IT demand, or inflation impacts.
A crucial aspect of the current market dynamic is the counterbalancing force of domestic investment.
- DII Absorption: DIIs, primarily mutual funds, injected massive liquidity (₹1.07 Lakh Cr net inflow in Oct 2024) to absorb FII selling.
- Robust SIP Flows: Systematic Investment Plan (SIP) contributions consistently hover around ₹18,000 Cr per month.
- Growing Retail Base: Over 7 crore retail investors are now participating, often via SIPs, indicating a growing long-term investment culture less reactive to short-term global cues. This domestic strength helps de-link India's market stability somewhat from FII flows.
1. Heightened Market Volatility
Foreign Institutional Investors (FIIs) have a considerable impact on market sentiment in India. The FIIs' sharp and strong sell-off, which exceeded ₹2.4 lakh crore, caused higher volatility in Nifty 50 and Sensex. While domestic investors — mutual funds and retail SIPs too — offered enough counterbalancing investor inflow, the overall investor sentiment turned cautious, and intraday volatility emerged with sharp price movements more often. The Stock Exchange of India Volatility Index (India VIX) increased by over 18% during February–March 2025.
2. Pressure on Large-Cap Stocks
FIIs have typically had a larger exposure to blue-chip, large-cap names. The recent exodus from equity into fixed income has impacted blue-chip large-cap stocks disproportionately more than others, and so the large-cap indices have performed worse than others. The Nifty 50, for example, corrected almost 10.5% peak to trough from October 2024.
3. Currency Pressure: Rupee Dynamics
Elevated levels of sustained FII outflows have driven demand for the US dollar and increased downward pressure on the Indian Rupee (INR). INR stabilisation has been supported by a combination of the RBI's targeted interventions and India's growing foreign exchange reserves. Furthermore, sustained rupee depreciation would lead to higher imported inflation, which would further complicate the RBI's stance on monetary policy.
Most analysts view the current FII selling as a tactical adjustment rather than a fundamental, strategic exit from India. Key points supporting this view:
- Strong Fundamentals: India's long-term growth story remains compelling, driven by robust domestic demand, favourable demographics (demographic dividend), and government reforms.
- Relative Stability: Compared to structural challenges in other Emerging Markets, India offers relative macroeconomic stability and continued reform momentum.
- Index Inclusion: Growing inclusion in global indices is expected to attract passive FII flows over time.
Dr. V.K. Vijayakumar, Chief Investment Strategist at Geojit Financial Services, suggests: "Reversal of FII strategy will happen when the dollar index moves down... Despite many positive developments like a strong Union Budget and a slight improvement in Q3 results, FIIs continued their selling spree... However, relentless selling in large caps has made their valuations attractive, opening up opportunities for long-term investors.” A weakening US dollar and more attractive valuations in beaten-down large caps are seen as key potential triggers for FIIs to return.
Periods of FII selling and market correction can present opportunities for discerning investors:
- Valuation Comfort: Many quality large-cap stocks now trade at more reasonable valuations, potentially below their historical averages.
- Domestic Support: Strong DII inflows and consistent SIP contributions provide a safety net and ongoing market support.
- Resilient Retail: The growing base of long-term retail investors adds depth and resilience to the Indian market.
The recent wave of FII selling in Indian equities is primarily a consequence of global macroeconomic shifts (rising US interest rates, strong dollar), stretched domestic valuations after a strong run-up, and tactical reallocation towards relatively cheaper markets like China.
While this creates near-term pressure and volatility, India's underlying economic strengths and the powerful counterbalancing force of domestic investors provide a basis for cautious optimism.
For investors with a long-term horizon, this phase could offer strategic entry points into quality Indian companies at more attractive valuations. A diversified and disciplined investment approach remains key.