The Indian equity market is experiencing its most challenging start in nearly a decade, primarily due to an unprecedented selloff by Foreign Portfolio Investors (FPIs). In the first six weeks of 2025, FPIs have offloaded over $10 billion (approximately ₹97,000 crore) worth of Indian equities, marking the highest outflow ever recorded during this period.
Market Indices Affected
This significant withdrawal has led to notable declines across major indices:
- Nifty 50: Down by 2.6%.
- Nifty Midcap 100: Fell by 11%.
- Nifty Smallcap 100: Decreased by 15%.
These figures represent the steepest six-week decline at the start of a year since 2016 for all three indices.
Comparisons with Other Emerging Markets
Among emerging markets, India has witnessed the highest FPI equity sales in 2025. Taiwan follows, with FPIs selling $2.5 billion worth of shares.
Factors Contributing to the Selloff
Several factors have contributed to this massive selloff:
Global Economic Policies: The election of Donald Trump as US president has introduced significant uncertainty in global markets. His administration's imposition of tariffs, including a 25% levy on imports from Canada and Mexico and additional tariffs on Chinese goods, has disrupted global trade dynamics.
Strengthening of the US Dollar: Since October 2024, the US dollar has strengthened considerably, leading investors to prefer safer assets like 10-year US Treasury bonds. This shift has resulted in a 3.6% depreciation of the rupee against the dollar during the same period.
Underwhelming Corporate Earnings: The October-December quarter saw Indian companies reporting lackluster earnings, further diminishing investor confidence and accelerating FPI withdrawals.
Expert Insights
U R Bhat, co-founder of Alphaniti Fintech, commented on the situation:
"The level of uncertainty caused by daily announcements and rollbacks is unprecedented since Trump took office. Equity markets hate uncertainty, and when it arises, investors flock to safe havens."
Similarly, Saurabh Mukherjea, founder of Marcellus Investment Managers, noted:
"We are witnessing the fastest deceleration in earnings growth in a long time, coupled with high valuations. Even large-cap indices are overvalued."
Outlook
Given the current global economic climate and domestic challenges, the Indian equity market may continue to face volatility. Investors are advised to exercise caution and stay informed about ongoing developments.
Disclaimer:
The information provided in this article is for informational and educational purposes only and should not be considered as financial or investment advice. The stock market is subject to risks, and past performance does not guarantee future results. Readers are advised to conduct their own research or consult with a professional financial advisor before making any investment decisions. The author and Sensexnifty.com are not responsible for any financial losses incurred based on the information provided in this article.
