Source: TOI
Context:
Foreign Portfolio Investors (FPIs) withdrew ₹34,993 crore (~$4 billion) from Indian equities in August 2025, the sharpest sell-off in six months. The move was triggered by steep US tariffs on Indian exports, high domestic valuations, and disappointing Q1 corporate earnings in some sectors.
Foreign Portfolio Investors (FPIs) in India
Who are they?
- FPIs are overseas investors who invest in Indian stocks, bonds, or mutual funds for short- to medium-term gains.
- They don’t control or manage companies; their investments are purely financial and easily reversible.
FPI vs FDI (Key Difference)
- FPI (Foreign Portfolio Investment):
- Short-term, in stocks/bonds.
- No control over companies.
- Highly volatile and quick entry/exit.
- FDI (Foreign Direct Investment):
- Long-term, in factories, infrastructure, or companies.
- Gives ownership and management control.
- Stable and less affected by short-term market swings.
Why do FPIs Pull Out Money?
- Global factor: US tariffs of up to 50% on Indian exports hurt sentiment.
- Domestic factor: High Indian valuations compared to cheaper global markets.
- Corporate earnings: Weaker-than-expected Q1FY26 results in some sectors.
Impact of FPI Outflows on Indian Market
- Stock Market: Heavy selling leads to market correction or volatility.
- Currency: Rupee tends to weaken as dollars move out.
- Liquidity: Outflows reduce liquidity in capital markets.
- Investor Sentiment: Domestic investors may panic, worsening the sell-off. Also highlights FPIs’ shift towards primary markets (IPOs) and debt instruments.
