Market Volatility, FPI Outflows Lead to Steep Drop in US Fund Holdings in India
Mumbai, India – US-based foreign portfolio investors (FPIs) have witnessed a significant erosion in the value of their Indian equity holdings, with portfolio values plunging 20% since September 2024.
According to data compiled by Moneycontrol from depositories, the total value of US-based FPIs’ equity holdings in India fell from ₹33.3 lakh crore in September 2024 to ₹26.61 lakh crore as of February 28, 2025.
This decline coincides with a 13% drop in the benchmark Sensex, driven by heavy selling by offshore funds since October 2024. The outflows have been exacerbated by a weaker rupee and policy uncertainties in the US under Donald Trump’s presidency.
Highlights of US FPI Sell-Off in India
- US-based FPIs’ holdings dropped from ₹33.3 lakh crore in September 2024 to ₹26.61 lakh crore in February 2025—a decline of 20%.
- Total FPI holdings in India fell by ₹15.5 lakh crore since September, with US-based investors accounting for ₹6.7 lakh crore of the decline.
- US-based FPIs’ holdings in dollar terms fell from $397 billion to $304 billion—a sharper 24% decline—due to rupee depreciation.
- The Indian rupee has weakened by 4.5% since September, now hovering near ₹87.3 per US dollar.
- Since October 1, 2024, FPIs have net sold Indian shares worth ₹2.3 lakh crore, significantly impacting market sentiment.
- The overall value of foreign portfolio holdings in India dropped to $713 billion in February 2025 from $931 billion in September 2024—a 24% decline.
Why Are US-Based Funds Pulling Out of India?
Trump’s Economic Policies Fuel Uncertainty
The steep decline in US-based investments in India aligns with Donald Trump’s return to the presidency in January 2025. His administration’s policies, including tariff hikes and trade restrictions, have increased uncertainty in global financial markets, leading to portfolio rebalancing among institutional investors.
“The uncertainty surrounding Trump’s trade policies and potential tariffs on Indian exports has made US institutional investors cautious about emerging markets,” said a leading market strategist.
Impact of Rupee Depreciation
The depreciation of the Indian rupee against the US dollar has further amplified portfolio losses for foreign investors.
- The rupee has depreciated 4.5% since September 2024, now trading at ₹87.3 per US dollar.
- This has eroded the dollar value of Indian equity holdings, making it less attractive for foreign investors to stay invested.
US Fed Policy and Interest Rates
With the US Federal Reserve keeping interest rates high, investors have redirected capital to US assets offering better returns, further fueling outflows from Indian markets.
“As long as US bond yields remain high, capital will continue flowing back to the US, affecting Indian equity markets,” said a financial analyst.
How US-Based FPIs Compare to Other Foreign Investors
The United States remains the largest contributor to FPI inflows into India, accounting for nearly 50% of total foreign investments. However, the recent sell-off has impacted the overall FPI landscape in India.
As per NSDL and CDSL Asset Under Custody (AUC) disclosures, total foreign portfolio holdings in India dropped from ₹78 lakh crore in September 2024 to ₹62 lakh crore in February 2025—a 22% decline.
Norwegian Funds Outperform US-Based Investors
While US-based FPIs saw a steep 20% decline, Norwegian funds managed to limit their losses to 14%.
- Norway’s sovereign wealth fund, Norges Bank, follows a long-term investment approach, avoiding short-term sell-offs during market downturns.
- Norwegian FPI holdings declined from ₹2.8 lakh crore in September to ₹2.4 lakh crore in February, a far smaller drop compared to US funds.
“Norges Bank’s strategy is focused on long-term value, unlike hedge funds and short-term institutional investors who react quickly to market fluctuations,” said an investment expert.
What Lies Ahead for Foreign Investments in India?
Factors That Could Influence FPI Inflows in 2025
-
US Federal Reserve’s Interest Rate Decisions
- If the Fed signals interest rate cuts later in 2025, liquidity could flow back into emerging markets like India.
-
Indian Economic Growth & Domestic Policies
- Despite market corrections, India remains one of the fastest-growing economies, making it attractive for long-term investors.
- Clarity on government policies for foreign investors could help improve FPI sentiment.
-
Stability in the Rupee
- If the rupee stabilizes in the coming months, foreign investors may return to Indian equities as currency risks diminish.
-
Policy Clarity from the Trump Administration
- If Trump’s policies on global trade become clearer, it could reduce market uncertainty and influence investor sentiment positively.
“Once global macroeconomic factors settle, we expect FPIs—especially US pension and university funds—to return to Indian markets,” said a senior fund manager.
