Foreign Capital Flees India; Telecom, Oil Gain as IT, Finance Suffer

Foreign Capital Exodus Reshapes Indian Market in 2025

Foreign investors dramatically reshaped the Indian market in 2025, withdrawing a substantial ₹1.67 trillion from equities overall. This headline figure, however, masks a sharp divergence in sector performance. While many sectors faced aggressive selling, a select group of industrial and commodity-focused industries experienced significant inflows, indicating a profound shift in foreign portfolio investor (FPI) strategy.

Cyclical Sectors Attract Investment

Telecom emerged as the dominant foreign investor favourite for the third consecutive year. Inflows into the sector surged to ₹48,222 crore in 2025, a significant jump from previous years. This sustained interest occurred even as broader market volatility persisted. The oil & gas sector also staged a strong comeback. After substantial outflows in prior years, it recorded ₹8,431 crore in inflows in 2025. Metals, mining, and chemicals, sectors often tied to global demand cycles, also returned to positive territory. Metals attracted ₹4,661 crore and chemicals ₹6,017 crore, marking their most robust foreign buying in three years.

Analysts cited attractive valuations and robust earnings momentum as key drivers for this pivot. Akshat Garg, head of research and product at Choice Wealth, noted that telecom benefited from strong performers like Bharti Airtel and the 5G rollout, while oil & gas saw gains from Reliance Industries' refining margins and global energy demand. Chemicals and metals were boosted by domestic infrastructure spending, supply chain realignments, and anticipation of a Chinese economic recovery.

Technology and Consumer Goods Face Sharp Selling

The information technology sector bore the brunt of foreign selling, experiencing a steep ₹74,698 crore exit in 2025. This marked a sharp reversal after modest outflows in 2023 and brief inflows in 2024. Consumer-facing businesses also struggled significantly. Fast-Moving Consumer Goods (FMCG) saw outflows accelerate for the third year, reaching ₹36,786 crore in 2025. Consumer durables and services also faced considerable pressure, with outflows of ₹21,369 crore and ₹16,524 crore, respectively.

Financial services, historically a core FPI holding, also saw a reversal, registering outflows of ₹14,903 crore. The power sector experienced intense selling, with ₹26,522 crore exiting the segment. Analysts attribute these outflows to stretched valuations, slowing earnings momentum, and weakening business conditions across these sectors. Global slowdown fears and rural demand weakness further impacted sentiment.

Outlook for Sector Rotation

Looking ahead, analysts anticipate the sharp rotation observed in 2025 to gradually moderate rather than intensify. While cyclical tilt may continue, the pace is expected to slow. Stabilizing macroeconomic conditions, potential earnings upgrades, benign inflation, and GDP growth could draw funds back into sectors like IT and financials. Domestic inflows from Systematic Investment Plans (SIPs) are expected to buffer market volatility. Fund managers suggest that future investment flows will increasingly depend on company-specific fundamentals, such as earnings visibility and cash flow generation, rather than broad sector themes.