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Foreign portfolio investors (FPIs), who had pumped in massive capital into Indian equities in May, reversed course in the opening week of June, withdrawing a total of Rs 8,749 crore. This shift in sentiment has been attributed to renewed concerns over US-China trade relations and a spike in US bond yields, prompting investors to opt for safer assets.

Data from depositories revealed that the latest outflow marks a sharp contrast to the Rs 19,860 crore net inflow recorded in May and Rs 4,223 crore seen in April. The recent pullback added to an already volatile year, with FPIs having pulled out Rs 3,973 crore in March, Rs 34,574 crore in February, and a significant Rs 78,027 crore in January. Cumulatively, foreign investors have offloaded Indian equities worth Rs 1.01 lakh crore so far in 2025, reported PTI.

Geopolitical Concerns and Bond Yield Pressure Weigh on Sentiment

Himanshu Srivastava, Associate Director - Manager Research at Morningstar Investment, pointed to a combination of factors unsettling investor confidence. “This bearish sentiment was triggered by renewed US-China trade tensions and rising US bond yields, which steered investors towards safer assets,” he said.

Adding to investor unease was the news of a US probe into the Adani Group over alleged sanctions violations related to Iran. Srivastava noted that this development “further weighed down investor confidence and dragged down key equity indices.”

RBI’s Surprise Policy Moves Offer a Silver Lining

While global developments have been negative for market sentiment, domestic monetary policy offered a surprise boost. The Reserve Bank of India’s unexpected decision to cut the repo rate by 50 basis points along with a 100 basis points reduction in the Cash Reserve Ratio (CRR) lifted investor morale.

VK Vijayakumar, Chief Investment Strategist at Geojit Investments, observed, “With growth prospects in the US and China looking bleak, India stands out as a resilient economy which can deliver above 6 per cent growth in FY26. The only concern is the high valuations which leave not much room for the rally to continue.”

Debt Market Sees Consistent Outflows

The equity segment wasn’t the only one impacted by FPI withdrawal. Between June 2 and 6, foreign investors also pulled Rs 6,709 crore from the debt general limit and Rs 5,974 crore from the debt voluntary retention route. According to Vijayakumar, FPIs have been cautious in the debt market as well, citing “the low differential in bond yields between US and Indian bonds.”