New Delhi, October 6, 2025: The Indian financial market is currently navigating a dual trend from foreign investment. While Foreign Portfolio Investors (FPIs) are continuously withdrawing capital from the Indian stock market the government bond market is showing positive signs with softening yields. Amid these mixed signals, the Indian Rupee has remained largely stable.
Disenchantment of Foreign Investors with the Stock Market
According to various media reports and market data, the year 2025 has been challenging for the Indian equity market in terms of foreign investment. So far this year FPIs have net sold Indian shares worth approximately ₹2 lakh crore. Analysts believe there are two main reasons for this significant outflow:
- High Valuations: The valuation of the Indian stock market is considerably higher compared to other emerging markets prompting foreign investors to book profits and redirect their money to cheaper markets like Spain, South Korea and others.
- Weakening Rupee: The depreciation of the Rupee against the US dollar has also impacted the returns for foreign investors leading them to consider exiting the Indian market.
Signs of Relief in the Bond Market
In contrast to the equity market the bond market is indicating a softening trend. The yield on India’s 10-year government bond has registered a decline. A fall in bond yield implies that bond prices are rising reflecting increased demand in the market. This demand could be attributed to steps taken by the Reserve Bank of India (RBI) and potential interest from foreign investors in the Indian debt market. A lower bond yield is a positive sign for the economy as it reduces the cost of borrowing for the government and corporations.
Impact on the Rupee and the Path Forward
Despite the large-scale withdrawal of foreign capital from the stock market the Indian Rupee has remained remarkably stable. This can be credited to India’s strong foreign exchange reserves which are capable of absorbing any major shocks.
Analysts believe that the future direction for the Indian market will depend on the global economic outlook and the monetary policies of the US Federal Reserve. If the valuation of Indian stocks comes to a more reasonable level and corporate earnings improve foreign investors may return to buying. Until then the stability of the Indian Rupee and the trend in bond yields will largely depend on the policies of the RBI and domestic economic performance.
