FPI outflows ebb amid easing global concerns, optimism over Russia-Ukraine conflict

The Indian equity market has witnessed a moderation in FPIs’ selling pressure with the outflows narrowing to ₹1,794 crore ($194 million) last week, buoyed by easing global concerns and growing optimism around a potential de-escalation in the Russia-Ukraine conflict.

However, despite this positive shift, it still marks the 15th consecutive week of outflows.

Going forward, Foreign Portfolio Investors (FPIs) are expected to remain cautious, awaiting greater clarity on the US Federal Reserve’s interest rate trajectory, geopolitical developments, and India’s domestic economic outlook, according to Himanshu Srivastava, Associate Director of Manager Research at Morningstar Investment.

According to the data with the depositories, FPIs have offloaded equity shares worth ₹1,794 crore ($194 million) for the week ended March 21. This was in comparison to $604 million outflow observed in the holiday-shortened preceding week.

Last week, FPIs turned net buyers on two occasions, with a significant purchase of ₹3,181 crore on March 21 and ₹710 crore on March 19.

“The recent reversal in FPIs selling has turned the market sentiments for the better, facilitating a rally in the market for the week ended March 21.

“It can be argued that positive domestic fundamentals like pick up in growth and decline in inflation coupled with weakness in the dollar have contributed to the change in FPIs strategy,” V K Vijayakumar, Chief Investment Strategist, Geojit Investment Services, said.

Investor sentiment has shown signs of improvement, buoyed by easing global concerns and growing optimism around a potential de-escalation in the Russia-Ukraine conflict, Srivastava said.

Positive domestic developments such as India’s better-than-expected trade deficit and China’s stimulus-driven consumption boost have further supported the sentiments. Additionally, the recent market correction has presented attractive entry points for investors, he added.

Srivastava also pointed out that that softening of the US dollar index along with rising expectations of a rate cut by the US Federal Reserve has supported foreign fund flows back into emerging markets like India.

Dovish commentary from the Fed — hinting at the possibility of two rate cuts this year — has encouraged FPIs to selectively re-enter Indian equities.

However, despite this renewed interest, FPIs have still withdrawn ₹31,719 crore from the market so far in March, following outflows of ₹34,574 crore in February and ₹78,027 crore in January. As a result, total FPI outflows for 2025 have now reached ₹1.44 lakh crore, according to data from the depositories.

On the flip side, the trend of FPI investment in debt has continued, with total debt investments of ₹10,955 crore in March through March 21, Vijayakumar said. This indicates a shift in FPI strategy, favouring debt instruments over equities amidst continued market volatility.