Same playbook, different numbers: Why FPI selling may not be the story it looks like

Indian equities remained under pressure this week, with the Nifty 50 extending its losing streak to seven weeks, its longest in six years, as elevated crude prices, rising US Treasury yields, geopolitical uncertainty and accelerating foreign portfolio investor (FPI) outflows weighed on market sentiment.

The Nifty fell around 0.88% during the week despite a late rebound as oil prices eased and value buying emerged.

However, the headline FPI equity outflow masks a more nuanced pattern in foreign investor behaviour. While FPIs remained sellers in the secondary market, they continued to commit substantial capital to primary-market opportunities and showed selective appetite for Indian debt.


Dheeraj Gaur, Chief Investment Strategy Officer at Choice Wealth, said provisional NSE data showed FPIs were net sellers of Rs 11,490 crore in equities between September 21 and 25. However, settled depository data from NSDL/CDSL showed a net Rs 3,843 crore inflow into equities during the week.

The divergence was largely explained by continued FPI participation in the primary market, particularly the Rs 5,515 crore primary-market inflow recorded on September 24.

“The underlying secondary-market trend remains cautious. Based on settled data, FPIs sold roughly Rs 2,006 crore in secondary equities during the week, while primary-market investments were approximately Rs 5,848 crore,” Gaur said.

“In other words, the foreign investor is not exiting Indian equities uniformly; rather, there is a clear preference for selective primary-market opportunities over broad-based secondary-market exposure,” he said.

The NSE IPO provides a clear illustration of this trend. The issue closed with a 5.7x overall subscription, while the QIB portion was subscribed 12.68x. FPIs submitted bids for 140.32 million shares, highlighting continued institutional appetite for primary-market opportunities even as foreign investors remained sellers in the secondary market.

“This distinction is important. The FPI behaviour currently looks less like a wholesale withdrawal from India and more like portfolio selectivity – reducing exposure to existing listed equities while allocating capital to specific IPOs/fresh listings where valuations, scarcity and liquidity may be more attractive,” Gaur said.

“It’s the same playbook.”

Debt flows remain resilient

The flow picture is not confined to equities.

Settled FPI data showed a net Rs 885 crore inflow into debt-related instruments during the week. However, the composition of the flows was significant.

The Fully Accessible Route (FAR) for government securities saw approximately Rs 2,912 crore of net buying, more than offsetting around Rs 822 crore of selling under the general debt route and roughly Rs 1,205 crore of selling under the Voluntary Retention Route (VRR).

“This suggests that foreign demand has not disappeared from Indian fixed income, but is becoming increasingly sensitive to relative yield, currency risk and the global rate environment,” Gaur said.

Secondary-market selling continues amid selective buying

The broader flow picture also points to continued FPI selectivity.

V K Vijayakumar, Chief Investment Strategist at Geojit Investments Limited, said the trend of FPI flows turning negative after positive inflows in July and August had become evident earlier this month.

The trend of FPI flows turning negative after positive inflows in July and August was evident early this month. This trend has sustained and the total equity outflows through exchanges have touched Rs 25682 crore this month through 25th August. Also the trend of FPI investment through the primary market continues with total investment of Rs 8551 crore up to 25th of this month. This trend of selling through the exchanges and investing through the primary market has taken the total FPI selling this year through exchanges to Rs 295971 crore and the total investment through the primary market during this period to Rs 54398 crore.

“Given the high US bond yields and better returns from India’s IPO market, this trend is likely to continue. Yet another significant trend in FPI investment is that even though they are sellers in large-caps, they have been sustained buyers in mid-and small-caps. FPIs also are chasing the market momentum,” Vijayakumar said.

US yields, crude and the rupee remain key

The US rate environment remains one of the central forces influencing FPI flows. The US 10-year Treasury yield was relatively unchanged on Friday after recent selling pressure intensified following hawkish Federal Reserve commentary and stronger-than-expected economic data.

Oil prices are another key variable.

“Oil and geopoliconomics remain the major risk. Elevated crude prices are particularly a challenge for India because of their immediate impact on the current account, inflation expectations and the rupee,” Gaur said.

“Brent remaining above $100/bbl is not helping at all.”

Currency risk is also important for foreign investors. The rupee has been hovering around Rs 96 per dollar. The RBI reportedly sold US dollars early in the session on Friday to prevent a breach past the key psychological Rs 96-per-dollar mark.

“Even if Indian asset returns remain attractive in rupee terms, depreciation can materially reduce dollar returns,” Gaur said.

Outlook for next week

The near-term FPI outlook is likely to remain data- and macro-sensitive rather than directionally one-way.

“A combination of easing crude, stabilisation in US yields and a firmer rupee could encourage some re-engagement in secondary equities. Conversely, another rise in US yields or crude could prolong selling,” Gaur said.

The headline Rs 11,490 crore provisional equity outflow therefore does not capture the full complexity of FPI behaviour. The flow pattern points to continued secondary-market selling alongside strong primary-market participation, selective debt buying and sustained interest in parts of the mid- and small-cap segment.

“The next phase of flows will likely hinge on whether the combination of US yields, crude and the rupee stabilises enough to make Indian secondary-market attractive again for FPIs,” Gaur said.

Disclosure: This article has been written by Kumar Gaurav, who is not a Sebi-registered Research Analyst or an Investment Adviser. Gaurav and their ‘relative(s)’ (as defined under Section 2(77) of the Companies Act, 2013) do not hold any financial interest in the companies mentioned in this article as of the date of publication. The views/recommendations mentioned in this article, wherever applicable, are those of the respective Sebi-registered Research Analyst/brokerage and have been reproduced/reported with due attribution. They should not be construed as the views or recommendations of The Economic Times Digital or the journalist. Readers are advised to consider the original research report and make their investment decisions based on their own assessment. Brokerage disclaimers here