FPIs pull out $2.7B from India's financial stocks in August
What's the story
Foreign portfolio investors (FPIs) offloaded ₹232.9 billion ($2.7 billion) worth of Indian financial stocks in August, the highest monthly outflow in seven months. The data was released by the National Securities Depository on Thursday. The sell-off was mainly triggered by weaker lender margins after aggressive policy rate cuts in Q2 and increasing stress in consumer loans, credit cards, and microfinance sectors.
Market impact
$4 billion outflow from equities in August
Along with financial stocks, FPIs also pulled out a total of $4 billion from equities in August. This is also a seven-month high. Ajit Banerjee, President and Chief Investment Officer at Shriram Life Insurance, said concerns over India's export competitiveness after steep US tariffs and muted June-quarter earnings have weighed on FPI flows.
Index decline
Financial services index fell by 4.1%
The financial services index fell by 4.1% during August, dragging the benchmark Nifty 50 down by 1.4%. FPIs offloaded ₹112.9 billion in IT stocks and ₹61 billion in oil and gas stocks during this period. However, telecoms witnessed foreign buying due to improved earnings visibility after mobile tariff hikes, while construction, autos, capital goods, and services attracted inflows.
Ongoing trend
Outflows continue into September
FPI outflows have continued into September, totaling $1.3 billion in the first three sessions. Analysts expect this selling pressure to ease gradually as India's macro fundamentals remain steady and GST rate cuts support consumption. The GST Council simplified the structure to two tiers, 5% and 18%, from four, with some exceptions for luxury and "sin" goods.
Market adjustment
Relative valuation gap with emerging markets narrows
Analysts have observed that India's relative valuation gap with other emerging markets has narrowed significantly over the last six to nine months. This could temper further outflows from FPIs. The Nifty 50 index has risen by 4.6% in 2025 so far, underperforming the 18% gains in emerging markets and a 17% jump in Asian peers.