FPIs Pull Out Rs 10,355 Crore From Indian Equity Markets As US Tariffs Trigger Global Sell-Off

Foreign Portfolio Investors (FPIs) have withdrawn Rs 10,355 crore from Indian equity markets in just four trading sessions this month, reversing their previous buying trend as concerns mount over aggressive tariffs imposed by the United States. This sudden reversal underscores the vulnerability of emerging markets to global policy shifts and trade tensions.

Recent FPI Activity: A Sharp Reversal

The recent outflow marks a significant shift in investor sentiment, coming immediately after FPIs had injected Rs 30,927 crore into Indian equities during the six trading sessions from March 21 to March 28. That brief period of strong inflows had helped reduce the overall outflow for March to Rs 3,973 crore, providing temporary relief to the markets.

This latest withdrawal extends what has been a challenging year for foreign investment in Indian equities. In February, FPIs pulled out Rs 34,574 crore, while January saw an even larger exodus of Rs 78,027 crore. With the April outflows, the total FPI withdrawal has now reached a staggering Rs 1.27 lakh crore in 2025 so far.

US Tariffs: The Primary Catalyst

Market analysts attribute the sudden reversal in FPI flows primarily to the sweeping tariffs recently announced by the United States. The tariffs, which were more severe than market participants had anticipated, have raised serious concerns about potential global economic repercussions.

VK Vijayakumar, Chief Investment Strategist at Geojit Investments, explained: "The tariffs, which were much steeper than anticipated, raised concerns about their broader economic impact." The measures include:

• A 10% baseline tariff on all imports to the United States
• A 25% tariff specifically on automobile imports
• Steep reciprocal tariffs on most countries, including a 26% tariff on India

These aggressive tariff measures have triggered fears of rising inflation in the US economy, along with growing concerns that these policies might push the world's largest economy toward stagflation—a dangerous combination of slow economic growth, high unemployment, and persistent inflation.

Global Market Reaction

The uncertainty surrounding these tariffs has already sparked significant selling pressure in US markets, with the S&P 500 and Nasdaq losing over 10% in just two days following the announcement. This dramatic market response reflects investor anxiety about the potential for a full-blown trade war that could disrupt global trade flows and hamper economic growth worldwide.

However, one potential silver lining has emerged from this situation. The steep decline in the dollar index to 102 is being viewed as a potentially favorable development for capital flows into emerging economies like India over the longer term, as a weaker dollar typically makes emerging market assets more attractive to foreign investors.

Beyond Equities: Debt Market Impact

The impact of these global developments has extended beyond equity markets. FPIs have also withdrawn Rs 556 crore from the debt general limit and pulled out Rs 4,038 crore from the debt voluntary retention route during the same period. This suggests a broader retreat from Indian financial markets as global investors reassess risk amid heightened uncertainty.

Looking Ahead: Key Factors to Watch

According to Manoj Purohit, Partner & Leader, FS Tax, Tax & Regulatory Services at BDO India, market participants will be closely monitoring several key factors in the coming weeks:

• The long-term impact of the proposed US tariffs on global trade
• Upcoming announcements from the Reserve Bank of India regarding its monetary policy stance
• Expectations of a potential rate cut by the RBI

These developments will play a crucial role in shaping investment strategies for the upcoming cycle and determining when—or if—foreign investors might return to Indian markets in force.

Market Implications

For Indian retail investors, these FPI outflows could create both challenges and opportunities. While sustained foreign selling can pressure market valuations in the short term, it may also create attractive entry points for long-term domestic investors looking to build positions in fundamentally strong companies at reasonable valuations.

The situation remains fluid, with market sentiment likely to remain sensitive to global trade developments, central bank policy decisions, and macroeconomic data in the coming weeks. Investors would be wise to maintain a diversified approach and focus on quality companies with strong fundamentals that can weather these periods of market volatility.

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