Market Moves: Telecom & IT Attract Investors, Financials & FMCG Struggle
Foreign Portfolio Investors (FPIs) continued their selling spree for the third straight month in February 2025, extending their bearish stance on Indian equities. According to data from the National Securities Depository Limited (NSDL), FPIs collectively pulled out ₹34,574 crore from the Indian stock markets over the course of the month.
The bulk of these outflows occurred in the first half of February, with FPIs offloading ₹21,272 crore worth of stocks during this period. However, the intensity of selling moderated slightly in the latter half of the month, with net withdrawals amounting to ₹13,302 crore.
The trend of foreign investor outflows has persisted into March as well. Data from NSDL indicates that in just the first four trading sessions of the month, FPIs have already sold Indian stocks worth ₹22,114 crore. This sustained selling pressure suggests continued caution among foreign investors, influenced by various global and domestic factors shaping market sentiment.
Understanding the FPI Outflows: Key Factors and Sectoral Impact
Foreign Portfolio Investors (FPIs) maintained their selling momentum in the Indian equity markets for the third consecutive month in February 2025. A deeper analysis of the reasons behind this trend and the sectoral impact reveals a complex interplay of valuation concerns, corporate earnings uncertainty, and shifts in global investment strategies.
Why Are FPIs Withdrawing from Indian Equities?
Vipul Bhowar, Senior Director – Listed Investments at Waterfield Advisors, highlighted two primary reasons for the continued FPI outflows: stretched valuations in the Indian stock market and uncertainty around corporate earnings growth.
“The third-quarter earnings for the fiscal year 2025 have been moderate, creating an uncertain environment. Furthermore, forward earnings revisions have faced challenges, with downgrades outpacing upgrades, particularly for companies outside the Nifty 50 index,” he explained.
Essentially, while Indian equities have performed well, they are now trading at premium valuations, making them less attractive to foreign investors looking for growth at reasonable prices. Additionally, as corporate earnings forecasts have been revised downward in many cases, concerns have risen over whether companies can justify their high valuations with strong future performance.
Beyond domestic factors, global market conditions also play a role. Many FPIs have been shifting funds toward Chinese equities, where valuations are currently lower, offering a potentially more attractive risk-reward ratio. This reallocation of funds has contributed to the selling pressure on Indian stocks, despite the long-term strength of certain sectors.
Sectors Most Affected by FPI Selling
FPI outflows were widespread across various sectors in February, but financial services and fast-moving consumer goods (FMCG) bore the brunt of the selling pressure.
1. Financial Services: The Hardest Hit Sector
The financial services sector witnessed the highest outflows in February, with FPIs offloading stocks worth ₹6,991 crore. Despite the sector’s strong fundamentals and attractive valuations compared to global peers, foreign investors seem to be reducing exposure, likely in favor of opportunities in other markets.
Dr. V K Vijayakumar, Chief Investment Strategist at Geojit Financial Services, noted an interesting contradiction in FPI behavior. “Despite financial services being a strong-performing sector with attractive valuations, FPIs are selling heavily in this space. This trend seems driven by their preference to shift funds to Chinese equities, where valuations are comparatively lower. However, in doing so, they are offloading some of the best-performing stocks in India,” he said.
2. FMCG Sector Sees Heavy Selling
The FMCG sector was another major loser, experiencing outflows of ₹6,904 crore. This could be attributed to concerns over slowing consumer demand and margin pressures due to inflationary trends.
3. Other Sectors Facing Significant Outflows
Several other sectors also witnessed substantial FPI withdrawals:
•Capital Goods: ₹4,464 crore outflows
•Automobile & Auto Components: ₹3,969 crore withdrawals
•Construction Materials: ₹3,844 crore outflows
•Oil, Gas & Consumable Fuels: ₹3,377 crore net selling
•Power: ₹3,086 crore withdrawals
•Consumer Services & Consumer Durables: ₹2,857 crore and ₹2,290 crore outflows, respectively
The healthcare sector saw mixed trends. Initially, FPIs showed interest in the sector, with inflows of ₹1,534 crore in the first half of February. However, this trend reversed in the latter half of the month, leading to overall net outflows of ₹1,462 crore.
Selective Buying: Telecom and IT Emerge as Bright Spots
While FPIs were net sellers across most sectors, certain industries managed to attract fresh investments. The telecommunications sector emerged as the biggest beneficiary, drawing net inflows of ₹7,998 crore in February. This suggests that investors view the sector as a resilient growth opportunity, possibly due to strong earnings visibility and structural demand.
The information technology (IT) sector also witnessed selective buying, with FPIs investing a net ₹805 crore. This is particularly noteworthy given the sector’s recent volatility amid global economic uncertainties. The investments indicate that some FPIs still see value in Indian IT firms, possibly due to their strong global client base and potential benefits from a weaker rupee.
Apart from telecom and IT, a few other sectors received modest FPI inflows:
•Chemicals: ₹429 crore
•Media & Entertainment: ₹22 crore
•Textiles: ₹33 crore
Conclusion: A Complex Investment Landscape
The sustained FPI outflows from Indian equities highlight growing investor caution amid high valuations and uncertain earnings growth. While financial services and FMCG faced the highest withdrawals, telecom and IT attracted selective buying, indicating that investors are still willing to deploy capital in sectors where they see long-term value.
The broader trend of FPIs reallocating funds to other global markets, particularly China, suggests that foreign investors are seeking lower valuations and higher growth potential elsewhere. However, India’s strong economic fundamentals and resilient corporate performance may still keep the country attractive to long-term investors despite the near-term selling pressure.
As the global macroeconomic environment evolves, market participants will closely watch whether this trend of FPI outflows continues or reverses in the coming months.
