FPI selloff: Over ₹10,000 crore pulled out from Indian stock market in a day. What triggered the outflow?

Mint

21-05-2025

Stock market today: After a sustained buying streak, overseas investors turned cautious and pulled out ₹ 10,016 crore from the Indian stock market during Tuesday's session (May 20), marking the highest single-day outflow since February.
However, domestic institutional investors have supported the markets by pumping ₹ 6,738 crore into the exchanges. Weak global cues and a lack of fresh domestic triggers prompted overseas investors to book profits in the Indian stock market after having invested ₹ 23,778 crore between May 1 and May 16, following inflows of ₹ 4,243 crore in April.
In addition, weak global cues such as Moody's downgrade of the U.S. sovereign rating by one notch, from Aaa to Aa1, as well as renewed global trade concerns that have further weighed on their sentiment. The spike in U.S. bond yields after the downgrade also impacted equity inflows, as higher yields make equities relatively less attractive.
After largely remaining sellers in the months following Indian benchmarks hitting record highs in September, foreign investors made a comeback in March, driven by attractive valuations and optimism that India could be among the first nations to strike a trade deal with the U.S.—prompting them to reassess their stance on Asia's third-largest economy.
Between October and February 2025, FPIs sold stocks worth ₹ 3 lakh crore. However, strong support from domestic investors and sustained institutional buying cushioned the impact of steady outflows.
Meanwhile, the U.S.-China trade truce has brought the 'Sell India, Buy China' theme back into focus, as Chinese stocks continue to trade at more attractive valuations compared to Indian equities. Experts believe that if both nations reach a permanent trade agreement, overseas investors may shift their attention from India to China.
The trade truce has also prompted several global investment banks to raise their forecasts for China's economic growth this year.
To stimulate the economy, Chinese officials have been announcing a slew of fiscal and monetary measures since the second half of last year—the latest being Beijing's decision to cut key lending rates by 10 basis points on Tuesday.
The People's Bank of China trimmed the one-year Loan Prime Rate (LPR) to 3.0% from 3.1% and the five-year LPR to 3.5% from 3.6%, which marks the first rate cut since the central bank's 25-basis-point reduction in October.
It is part of a broader stimulus package announced earlier this month, which also includes reductions in lending rates and the reserve requirements for banks.
Dr V.K. Vijayakumar, Chief Investment Strategist at Geojit Financial Services, said, 'A spike in uncertainty and risk is impacting the market rather unexpectedly. Yesterday's FII sell figure of ₹ 10,016 crore is a major reversal of their big buying in May, and if this persists, it has the potential to impact the market. What caused this sudden reversal in FII activity? A combination of many factors may be responsible: the credit rating downgrade of US sovereign debt and the consequent spike in US bond yields, the spike in Japanese government bond yields, rising COVID cases in some parts of India, and reports of a possible Israeli attack on Iran are doing the rounds. Investors can wait and watch for the events to unfold."
"The 30-year JGB yield spiking to 3.14 % in the backdrop of the US 30-year yield spiking to 5% a couple of days back sends a feeling of disquiet in financial markets. This may not create any near-term impact but is bound to have some medium- to long-term consequences. Investors have to exercise caution," he further added.
Disclaimer: The views and recommendations given in this article are those of individual analysts. These do not represent the views of Mint. We advise investors to check with certified experts before taking any investment decisions.