Massive equity FPI pullout (includes FII) in the month of October 2025 – net of (-)₹96358.00 crore or (-)$11.5 billion – is the highest in more than a decade. The NSDL data shows, two of the largest pullouts since January 2014 were (-)₹61,973 crore in March 2020 and (-)₹50,203 crore in June 2022 – much smaller in comparison.
The annual FPI data shows, FPI equity deserted India in FY22 and FY23 – net of (-)₹1.4 lakh crore and (-)0.4 lakh crore, respectively – before turning net buyers in FY24 at ₹20.8 lakh crore. The FPI equity investment for FY25 (until October 31), however, remains positive at ₹84,055 crore.
But the alarm bells (long-term threat to investment) must go up now for many reasons.
Two of the key ones are:
Equity FDI inflows have progressively gone down for three fiscals – from $61.1 billion in FY21 to $59.7 billion in FY22, $47.6 billion in FY23 and $45.8 in FY24 ($16.5 billion during April-June of FY25). Growth in inflows is negative for three fiscals too – from -2% in FY22 to -20% in FY23 and -4% in FY24 (DPIIT).
Private capex (GFCF) remains below 11% of GDP for six consecutive fiscals from FY18 to FY23 (up to which data is available) – falling from peaks of 11.9% in FY16 and 16.8% in FY08 (2011-12 series). RBI’s October 2024 bulletin says private investment is showing “encouraging” lead “although the slack continues”.
FPI flight risks: China and domestic factors
Apparently, the trigger for the FPI pullout in October was China’s unprecedented monetary stimulus of September 24, 2024 (cut in borrowing costs, households’ mortgage downpayments and banks’ cash reserves) but that no longer explains the continued flight.
China’s stock markets, which climbed up in response to the stimulus, fell from October 8 as the expected fiscal stimulus didn’t materialize. It announced fiscal stimulus on October 12 (expansion in fiscal expenditure, support to local governments to overcome debt risks, support for property market and consumption for low-income groups, recapitalization of banks etc.). It is also supporting stock buybacks but its stock markets have not reached their October 8 peak.
Meanwhile, two negative news are coming from China: Its growth in Q3 of 2024 slowed down to 18-month low of 4.6% and industrial profits plunged.
It must, however, be kept in mind that FPIs had returned to China in Q1 of 2024 – after a drought in 2022 and 2023. It must also be noted that the FPIs’ flight from India in October 2024 is not an exception; the month saw FPIs pulling out of most emerging markets (South Korea, Thailand, Indonesia, Malaysia, Vietnam), except Taiwan.
There are domestic factors too:
(a) Overvaluation of stocks. PE of Nifty50 is 22.58x against “average” of 13.9x for the Shanghai Stock Exchange (SSE), both on October 31, 2024. Indian stocks are known to be overvalued compared to its global peers for a long time (Economic Survey of 2022-23).
(b) Increase in capital gains tax on foreign investors being flagged after the FY25 budget on July 23.
(c) Weakening GDP growth. RBI’s projection of 7% in FY25 – 6.7% in Q1, 6.8% in Q2 and 7.4% each in Q3 and Q4 (RBI’s October bulletin) is substantially lower than 8.2% in FY24 (P).
(d) Weakening corporate profits. RBI’s October 2024 bulletin says, corporate results for Q1 showed “deceleration” by non-government non-finance companies and while “real investments” in plants and machinery “remained subdued”, net fixed assets “slowed down” (further slowdown).
(e) Weakening INR against the USD (trading projected to remain at ₹84 for next three months) – which lowers returns for FPIs.
(f) Escalation of the West Asia war – which adversely impacts India’s trade, raises inflation risks due to higher crude price, furthering weakening INR.
SEBI sleeping on the wheels
On September 23, 2024, SEBI published a study which made explosive revelations in equity F&O trading: “93% of individual traders incurred losses in equity F&O between FY22 and FY24”.
This was a follow-up of its first such study, published on January 25, 2022 – which said 85% and 89% individual traders had booked loss in F&O in FY19 and FY22, respectively.
In short, individual traders are progressively losing more money in F&O trade.
Who gained?
The SEBI report said, “profit makers” were “proprietary traders and FPIs” and “most of the profits were generated by larger entities that used trading algorithms, with 97% of FPI profits and 96% of proprietary trader profits coming from algorithmic trading”.
‘Proprietary traders’ are financial firms and commercial banks investing directly and not on behalf of clients.
These three facts – progressively more individual traders booking loss, profits going to “proprietary traders and FPIs” and use of trade algorithms by the latter – should raise multiple red-flags. As market regulator, the SEBI must provide level-playing field and remove information and technical asymmetries – to ensure no market manipulation.
But SEBI ignored it. It hasn’t addressed mushrooming deep-fake videos and fake news in social media either – which use celebrities like Amitabh Bachchan, Ratan Tata, Narayan Murthy, Anant Ambani and others to lure retail investors to automated trading applications/platforms.
Instead, its circular of October 1, 2024 which discouraged individual traders in F&O – imposed upfront collections of options premiums, raised contract size from ₹5-10 lakh to ₹15 lakh, restricted trading to benchmark indices with weekly expiry etc.
As for its 2022 study (mentioned earlier), the SEBI didn’t identify “profit makers” (beyond the 15% and 11% individual traders who made profits in FY19 and FY22, respectively) – nor looked for reasons.
Apparently, the SEBI doesn’t track trading by “larger entities” (FPIs and DIIs, the latter qualify as “proprietary traders”). Had that been the case it would have found more reasons to protect retail/individual investors.
But before getting into this aspect, a background.
No stock exchange (NSE, BSE, MSCI) and their data platforms (NSDL and CSDL) nor the SEBI provide DIIs’ trading data. This is despite DIIs being as significant as FPIs. The NSE provides DII trading data but only “provisional and subject to change” data one-day-at-a-time – which are replaced everyday with next day’s data. The FPI data, on the contrary, are provided on daily, monthly and yearly basis.
The following analysis, therefore, is based on NSE “provisional” and one-day-at-a-time data.
Large investors in synchronised trading
Analysis of the FPI and DII trading data (in equity) shows a coordinated pattern as if guided by an ‘invisible hand’ – acting in self-interest as Adam Smith meant it to be but seemingly against the spirit of free market.
Monthly net trading data in the NSE, BSE and MSEI for 211 months (over 17 years) – from April 2007 to October 31, 2024 – show:
(i) In 174 months (82.5%) they pulled in opposite directions, that is, if FPI bought, DIIs sold and vice versa.
(ii) In rest 37 months, both pulled in same direction, turning net buyers in 36 and net sellers once.
The following graph tracks their net monthly trading for five years (October 2019 and October 2024) for illustration.
Despite such a clear and long-term trend, no study has been carried out by the SEBI or FinMin to understand the dynamics.
This trend could be due to several factors: Private DIIs buying from the lows caused by FPIs’ sale (and vice versa), FinMin coordinating with public DIIs – as past governments have also done to ensure market stability – or FPIs and DIIs doing a balancing act in their long-term interests.
A study is key to protecting over 100 million retail investors.
There is even bigger failing: Intransigencies of SEBI and FinMin.
Systemic challenges to investment
The SEBI is unable to restore faith in market (key to investment) as recent developments show.
On September 13, 2024, it overturned its 2019 findings in the co-location case (selected brokers getting preferential access at the NSE) to give clean chits to the NSE and the officials. It hasn’t disclosed its findings in the Hindenburg-Adani saga (allegations of market manipulations and financial impropriety) for 20 months and missed its two Supreme Court-set deadlines (May and August 2023) twice. Nor about the conflicts of interest allegations against its chief Madhabi Buch – a SEBI Board member and its RTI reply taking positions contrary to its own earlier replies. It also refused probe (no evidence of ‘unfair trading’ in the crash) into the market crash of June 4, 2024 (Lok Sabha election counting).
On October 26, 2024, Finance Minister Nirmala Sitharaman asked at a public function in Washington: “What is holding the investors back?” In 2022, she had told the Parliament that “FIIs and FPIs may come and go but today the Indian retail investors have proven that any shock that may come in is now taken care of”.
