India’s stock market ecosystem is a dynamic blend of opportunity and volatility, shaped by domestic and global forces. At its core lie the primary and secondary markets, which serve distinct purposes in capital formation and trading. This article delves into these markets, explores the roles of Foreign Direct Investment (FDI) and Foreign Portfolio Investors (FPIs), analyzes historical flows, and discusses broader implications including currency impacts, withdrawal signals, and potential bubbles. Drawing on data up to September 26, 2025, we examine trends from FY 2013-14 to FY 2024-25, with a focus on recent periods. A key addition is the discussion of FDI and FPI investments in listed and unlisted Indian companies for FY 2023-24, FY 2024-25, and the period from April 1, 2025, to September 27, 2025, including percentages relative to total investments where available, legal restrictions, and mechanisms for purchasing unlisted shares. Amid escalating global tensions and domestic overvaluations, this analysis uncovers how foreign capital’s exodus is exposing cracks in India’s growth narrative, while domestic inflows mask deeper vulnerabilities.

Understanding Primary And Secondary Markets In India’s Stock Ecosystem

The primary market is where companies issue new securities to raise fresh capital for expansion, debt repayment, or operations. This includes Initial Public Offerings (IPOs), Follow-on Public Offers (FPOs), rights issues, and preferential allotments. In India, it’s regulated by the Securities and Exchange Board of India (SEBI) under the Issue of Capital and Disclosure Requirements (ICDR) Regulations. Companies must file a prospectus detailing financials, risks, and use of proceeds, ensuring transparency.

In contrast, the secondary market facilitates the trading of existing securities among investors on platforms like the National Stock Exchange (NSE) and Bombay Stock Exchange (BSE). It provides liquidity, allowing investors to buy and sell shares without involving the issuing company directly.

Key Differences From Investment And Regulation Perspectives

From an investment viewpoint, the primary market involves direct funding to companies, often at a fixed or discovered price, appealing to long-term investors seeking growth potential. Returns come from dividends, capital appreciation, or buybacks, but liquidity is low until listing. The secondary market, however, is for short- to medium-term trading, where prices fluctuate based on market sentiment, earnings reports, and economic news, offering quick exits but higher volatility.

Regulatory differences are stark. Primary market issuances require SEBI approval, with stringent norms on pricing, promoter lock-ins, and minimum public shareholding (25% for listed firms). Violations can lead to penalties or delisting. The secondary market emphasizes fair trading practices, with SEBI overseeing surveillance to prevent insider trading, market manipulation, and fraud via tools like the Securities Contracts (Regulation) Act, 1956. Both markets fall under SEBI, but the primary focuses on issuance integrity, while the secondary prioritizes market efficiency and investor protection.

Introduction To Listed And Unlisted Companies In India’s Stock Ecosystem

In the context of India’s primary and secondary markets, listed companies are those whose securities are officially registered and traded on recognized stock exchanges such as the NSE or BSE. This listing typically follows an IPO or similar issuance in the primary market, enabling public trading. Unlisted companies, on the other hand, are entities whose shares are not traded on these exchanges; they may issue securities privately but lack the public liquidity.

Roles Of Listed And Unlisted Companies

Listed Companies

(1) In The Primary Market: Listed companies play a pivotal role in raising fresh capital through mechanisms like IPOs, FPOs, rights issues, or preferential allotments. This involves issuing new securities under SEBI’s ICDR Regulations, requiring a prospectus that ensures transparency on financials, risks, and fund usage. Their role here is to fuel expansion or operations by tapping into public funds, often at a price discovered through market mechanisms like book-building.

(2) In The Secondary Market: Once listed, these companies facilitate ongoing trading of their existing securities on platforms like NSE and BSE. They don’t directly raise capital here but benefit indirectly through enhanced visibility and valuation, as investors trade based on market dynamics such as sentiment, earnings, and economic news.

Unlisted Companies

(1) In The Primary Market: Unlisted companies primarily engage here to issue new securities for capital needs, but typically through private placements or preferential allotments rather than public offers. Contrary to common misconceptions, unlisted companies in India do not need to comply with SEBI regulations for any issuance; SEBI primarily regulates issuances involving public offers, listed companies, or companies intending to list their securities on stock exchanges. For unlisted companies (both private limited and unlisted public limited), share issuances through private placements—such as to private individuals or venture capitalists—are governed by the Companies Act, 2013, under the jurisdiction of the Ministry of Corporate Affairs (MCA), not SEBI. SEBI approval is not required for such private placements, provided they do not exceed the threshold that deems them a public offer (e.g., offers to more than 200 persons in a financial year, excluding qualified institutional buyers and employee stock options). However, if a private placement violates limits or is structured in a way that it is deemed a public offer under Section 42(6) of the Companies Act, it could trigger SEBI oversight, requiring compliance with SEBI’s Issue of Capital and Disclosure Requirements (ICDR) Regulations, 2018, as public offers fall under SEBI’s purview.

The regulatory norms that unlisted companies must follow for issuing shares in the primary market via private placement to private individuals or venture capitalists are outlined under Section 42 (Offer or Invitation for Subscription of Securities on Private Placement) and Section 62(1)(c) (Further Issue of Share Capital) of the Companies Act, 2013, along with related rules such as Rule 14 of the Companies (Prospectus and Allotment of Securities) Rules, 2014, and Rule 13 of the Companies (Share Capital and Debentures) Rules, 2014. These norms ensure transparency, investor protection, and prevent misuse as disguised public offers.

Key requirements include:

(a) Eligibility And Scope: Any unlisted company (private or public) can issue securities (e.g., equity shares, preference shares, or debentures) through private placement for cash or non-cash consideration, but only to a select group of identified persons, such as private individuals or venture capitalists. The issuance must not involve public advertisement or solicitation via media, agents, or mass communication.

(b) Investor Limit: The offer cannot be made to more than 200 persons in a single financial year (aggregated across all private placements in that year), excluding qualified institutional buyers (QIBs) and issuances to employees under ESOP schemes. Exceeding this limit deems it a public offer, requiring a prospectus and potential SEBI compliance. Exceptions apply to certain regulated entities like NBFCs (under RBI) or housing finance companies (under NHB).

(c) Approvals Required:

(i) Board approval via a resolution detailing the type of securities, price, number of securities, purpose of funds, and list of proposed allottees.

(ii) Shareholder approval through a special resolution (75% majority) at a general meeting, which must be filed with the Registrar of Companies (RoC) in Form MGT-14 within 30 days.

(iii) Valuation: Shares must be priced based on a valuation report from a registered valuer (e.g., a chartered accountant or SEBI-registered merchant banker). For non-cash consideration, both the shares and the consideration must be valued.

(iv) Offer Document: Issue a private placement offer cum application letter in Form PAS-4 to identified persons (recorded in Form PAS-5). This must include company details, financials, fund usage, risks, terms, and no right of renunciation. The offer must be issued within 30 days of identifying allottees.

(v) Payment And Bank Account: Subscription money must be received only through banking channels (cheque, demand draft, or electronic transfer—no cash). Funds must be deposited in a separate bank account in a scheduled bank and cannot be used until allotment is completed and filings are done.

(vi) Allotment Timeline: Allotment must be completed within 60 days of receiving subscription money. If not, refund the money within 15 days with 12% interest per annum. The entire process must be completed within 12 months of the special resolution.

(vii) Filings with RoC:

File the special resolution in Form MGT-14 within 30 days.

File return of allotment in Form PAS-3 within 15 days of allotment, including valuation report and list of allottees.

(viii) Record-Keeping: Maintain records of offers, allottees, and update the Register of Members (Form MGT-1). No fresh offer can be made until prior ones are completed, withdrawn, or abandoned.

(ix) Penalties For Non-Compliance: Fines up to the amount raised (for the company) or Rs. 2 crore (for officers), potential imprisonment up to one year, and mandatory refunds with interest.

For unlisted public companies, additional pre-2013 rules like the Unlisted Public Companies (Preferential Allotment) Rules, 2003, may have historical relevance but are largely subsumed under the Companies Act, 2013. Companies should consult legal experts for case-specific compliance, as sector-specific regulations (e.g., RBI for NBFCs) may apply alongside. This role allows unlisted companies to raise funds without the full disclosure rigors of a public prospectus, making it suitable for startups or family-owned businesses seeking growth without immediate public scrutiny.

(2) In The Secondary Market: Unlisted companies have minimal to no direct role, as their shares aren’t traded on exchanges. Any transfer of shares occurs privately (e.g., over-the-counter or through shareholder agreements). This limits their involvement to indirect influences, such as when they prepare for listing by building a track record in the primary market.

Impacts Of Listed And Unlisted Companies

(1) Economic And Market Impacts

(a) Listed Companies: They significantly impact India’s stock ecosystem by enhancing overall market capitalisation and investor participation. Through primary market issuances, they inject fresh capital into the economy for expansion or debt repayment, fostering job creation and innovation. In the secondary market, their trading drives volatility but also provides liquidity, enabling efficient capital allocation. The appeal to long-term investors in primaries (via growth potential) and short-term traders in secondaries (via quick exits) broadens investment diversity. However, their impact includes risks like market manipulation, prompting SEBI’s surveillance tools.

(b) Unlisted Companies: These entities impact the economy through grassroots innovation and entrepreneurship, often in sectors like tech startups or SMEs, where they raise capital privately in the primary market without secondary market pressures. Their lower regulatory burden allows flexibility, but this can lead to less transparency, potentially increasing investor risks in private deals. They contribute to economic diversity by filling gaps where public markets are inaccessible, but their impact on broader liquidity is negligible since shares aren’t freely tradable.

(2) Investor Impacts

For investors, listed companies offer higher liquidity and protection via SEBI’s emphasis on issuance integrity (primary) and anti-fraud measures (secondary), but with exposure to volatility. Unlisted ones provide potentially higher returns through early-stage investments in primaries, yet with low liquidity and higher risks due to limited disclosure. The distinction in investment viewpoints—fixed-price funding in primaries versus fluctuating trades in secondaries—highlights how listed companies cater to diverse strategies, while unlisted ones suit patient, risk-tolerant investors.

Relationship Between Listed And Unlisted Companies

The relationship between listed and unlisted companies is evolutionary and interdependent, mediated by the primary and secondary markets.

(a) Transition Pathway: Unlisted companies often use the primary market as a stepping stone to become listed. An IPO transforms an unlisted entity into a listed one, shifting from private capital raises to public issuances with SEBI-mandated transparency (e.g., promoter lock-ins). Post-IPO, the company enters the secondary market for trading, illustrating a direct progression. This relationship allows unlisted firms to mature privately before embracing public accountability, with impacts like increased valuation upon listing.

(b) Interdependence And Complementarity: Listed companies rely on a pipeline of unlisted ones for market renewal; many blue-chip firms started unlisted. Conversely, unlisted companies benefit from benchmarking against listed peers’ performance in secondaries, informing their primary market strategies. Regulatory ties bind them: Both adhere to relevant laws, but listed ones face stricter SEBI norms (e.g., minimum public holding), creating a gradient where unlisted firms can operate with more autonomy under the Companies Act. Violations in primaries (e.g., non-compliance) can prevent listing, while secondary market efficiency influences unlisted valuations indirectly through comparable company analyses.

(c) Contrasts And Tensions: The regulatory differences—primary’s focus on issuance vs. secondary’s on trading—underscore tensions. Listed companies enjoy liquidity but endure volatility and scrutiny, potentially deterring unlisted ones from listing due to compliance costs. Yet, this relationship drives overall ecosystem health: Unlisted innovation feeds into listed stability, balancing growth with regulation. In impacts, listed firms amplify economic signals (e.g., via index movements), while unlisted ones provide niche opportunities, fostering a symbiotic dynamic.

In summary, within India’s stock ecosystem, listed companies dominate the secondary market for liquidity and trading, while both engage in primaries for capital. Unlisted ones offer foundational flexibility, evolving into listed entities for scale. This interplay enhances market resilience, investor options, and economic growth, all under appropriate regulatory oversight for transparency and fairness.

FDI And FPI Investments In Listed And Unlisted Companies

FDI and FPI play distinct roles in channeling foreign capital into listed and unlisted Indian companies, with FDI focusing on long-term control and FPI on portfolio diversification. Data for FY 2023-24 shows gross FDI inflows of $71.3 billion, with net FDI at $10.1 billion. For FY 2024-25, gross inflows rose to $81.0 billion (a 14% increase), but net FDI dropped sharply to $0.35 billion due to high repatriations and outward FDI. For April 1, 2025, to September 27, 2025 (H1 FY 2025-26), gross inflows for April-June alone reached $18.62 billion (13% surge), with net FDI estimated at $10.75 billion up to July as data is pending for August-September.

FPI net inflows were $41.6 billion in FY 2023-24 and $2.4 billion in FY 2024-25 (a 94% decline). For the April-September 2025 period, FPI saw net outflows of -$15.7 billion, driven by equity sell-offs.

Regarding listed vs. unlisted investments, detailed public breakdowns are limited, but patterns emerge from regulatory definitions and sector trends. FDI is defined under FEMA as investments in unlisted companies or 10%+ stakes in listed ones, making it suitable for both but predominantly directed toward unlisted entities like startups and greenfield projects in services (19% share) and tech. Estimates suggest 70-80% of FDI flows to unlisted companies, with the remainder in listed via substantial acquisitions (e.g., mergers). In FY 2023-24, this proportion represented approximately 75% unlisted (based on sector inflows favoring non-public firms), equating to about $53.5 billion gross in unlisted vs. $17.8 billion in listed. For FY 2024-25, similar ratios hold, with unlisted at ~$60.75 billion (75%) and listed at $20.25 billion. For April-September 2025, unlisted likely dominates at 80% (~$30 billion gross estimate for H1), given focus on fintech and AI startups.

FPI investments are almost entirely in listed companies (100% for equity), as regulations prohibit fresh purchases in unlisted equity shares. Any unlisted exposure is limited to debt instruments with minimum maturity requirements, comprising negligible portions (under 1% of total FPI). Thus, FPI’s $41.6 billion in FY 2023-24, $2.4 billion in FY 2024-25, and -$15.7 billion outflows in H1 2025-26 are fully attributed to listed securities.

Legal Restrictions On FDI/FPI In Unlisted Companies

There are no blanket restrictions on FDI in unlisted company shares, but investments must comply with the Consolidated FDI Policy, including sector-specific caps (e.g., 100% automatic in manufacturing, approval route for defense). Sales of unlisted shares by FDI investors can occur via private transactions or open market (if delisted), subject to pricing guidelines (fair market value) and RBI reporting. Violations may trigger penalties or divestment orders.

For FPI, investments in unlisted equity shares are prohibited under SEBI regulations; fresh purchases are not allowed, though legacy holdings from prior regimes can be maintained. FPIs may invest in unlisted non-convertible debentures (NCDs) or securitised debt with a 3-year minimum residual maturity and end-use restrictions. Sales of any unlisted holdings must follow private transfer norms, without open market access.

How FDI/FPI Purchase Shares In Unlisted Companies

FDI investors purchase unlisted shares via the primary market (subscribing to new issuances like private placements or rights issues) or secondary market (acquiring from existing shareholders through off-market deals). The process involves obtaining government approval if under the approval route, valuation by a registered valuer, and reporting to RBI via Form FC-GPR (for issuance) or FC-TRS (for transfer). Pricing must adhere to FEMA norms (not below fair value for inflows, not above for outflows).

FPIs generally cannot purchase unlisted equity shares, limiting them to the above debt options through private subscriptions. Any acquisition requires reclassification to FDI if stakes exceed 10%, shifting to FDI rules.

These dynamics highlight FDI’s role in unlisted growth (e.g., startups attracting 75%+ of flows) versus FPI’s listed focus, influencing market stability amid outflows.

FDI Investment: Primary Or Secondary Market?

FDI investors, who seek significant control or long-term stakes, can invest in both primary and secondary markets in India. Typically, FDI flows into the primary market through subscriptions to new shares in IPOs, private placements, or greenfield projects, allowing direct capital infusion into companies. However, FDI can also occur in the secondary market via acquisitions of existing shares, especially if the stake exceeds 10% of paid-up capital in a listed firm, classifying it as FDI rather than portfolio investment. This is governed by the FDI Policy and Foreign Exchange Management Act (FEMA), with sector-specific caps (e.g., 100% automatic in most manufacturing, but approval needed for defense).

In practice, FDI favors primary routes for strategic control, while secondary buys are used for mergers or stake-building in listed entities.

Valuation Rules In Primary And Secondary Markets

Valuation in the primary market is tightly regulated to protect investors. For IPOs, SEBI mandates book-building (where price is determined by investor bids) or fixed-price methods. Preferential allotments must follow floor prices based on the higher of: (i) average weekly high-low of closing prices for 26 weeks preceding the relevant date, or (ii) average for 2 weeks. Valuers registered with SEBI or IBBI ensure compliance, preventing under- or over-pricing.

The secondary market operates on free-market principles, with share values driven by supply, demand, company performance, and macroeconomic factors. No fixed rules apply, but SEBI enforces disclosure norms and circuit breakers to curb excessive volatility. Prices are discovered in real-time via electronic trading.

FPI Investments And Withdrawals: FY 2014-15 To FY 2024-25

FPIs represent hot money in equities and debt, often reacting to global cues. Below is a table of net FPI inflows (in USD billion, combining equity and debt for comprehensive view), with yearly percentage changes. Data reflects volatility, with peaks during bullish phases (e.g., post-COVID recovery) and outflows amid global tightening.

Fiscal Year	Net FPI (USD billion)	YoY % Change	Reason for Change
2014-15 (Apr 2014 – Mar 2015)	45.39	N/A	High inflows driven by optimism around the new Modi government, economic reforms (e.g., Make in India), improved growth prospects, and stable global liquidity post-Fed taper.
2015-16 (Apr 2015 – Mar 2016)	-2.78	-106.13%	Shift to outflows due to global economic slowdown, China’s currency devaluation sparking EM sell-off, lingering effects of Fed rate hike expectations, and domestic concerns like weak corporate earnings.
2016-17 (Apr 2016 – Mar 2017)	7.22	+359.71%	Return to inflows amid post-demonetization recovery, anticipation of GST implementation boosting investor confidence, and favorable global conditions like low oil prices supporting India’s macro stability.
2017-18 (Apr 2017 – Mar 2018)	22.45	+211.08%	Strong inflows fueled by robust GDP growth (~7%), corporate tax reforms, improved ease of doing business rankings, and global risk-on sentiment attracting capital to emerging markets.
2018-19 (Apr 2018 – Mar 2019)	-5.57	-124.81%	Outflows triggered by IL&FS financial crisis eroding confidence, pre-election uncertainty, rising US interest rates pulling capital back, and global trade tensions (US-China war).
2019-20 (Apr 2019 – Mar 2020)	-3.88	-30.34%	Continued outflows amid COVID-19 pandemic causing global risk aversion, lockdowns disrupting economic activity, and flight to safety in US assets; partially offset by early stimulus measures.
2020-21 (Apr 2020 – Mar 2021)	35.98	+1027.32%	Massive inflows due to unprecedented global liquidity from central bank stimulus (e.g., Fed QE), vaccine rollout optimism, India’s rapid economic recovery, and attractive valuations post-COVID dip.
2021-22 (Apr 2021 – Mar 2022)	-16.41	-145.61%	Outflows from Fed monetary tightening, rising inflation, Russia-Ukraine war escalating energy prices, and supply chain disruptions; domestic high valuations also prompted profit-taking.
2022-23 (Apr 2022 – Mar 2023)	-5.1	-68.92%	Persistent outflows amid aggressive global rate hikes to combat inflation, recession fears in developed markets, and ongoing geopolitical tensions; offset slightly by India’s relative resilience.
2023-24 (Apr 2023 – Mar 2024)	40.96	+903.53%	Strong inflows driven by expectations of global rate cuts, India’s robust GDP growth (~7-8%), declining inflation, stable rupee, and pre-election reforms; highest since FY 2020-21.
2024-25 (Apr 2024 – Mar 2025)	2.37	-94.22%	Modest inflows amid mixed sentiment from post-election stability and infrastructure push, but limited by high valuations, US election uncertainties (Trump win), and geopolitical risks.
2025-26 (Apr 2025 – Sep 2025)	-3.25	-237.13%	Shift to outflows due to strengthened US dollar, Trump resurgence boosting US economy, concerns over India’s slowing growth/inflation, and lack of easing in FPI norms; debt inflows partially offset equity sell-offs.

Recent FPI Trends (April 1, 2025 – September 26, 2025)

The net FPI for partial FY 2025-26 (April-September 2025) recorded an outflow of -$3.25 billion, reflecting a notable reversal from prior years’ trends. This was largely attributed to a robust US dollar strengthened by the Trump administration’s economic policies, which redirected capital flows toward American markets, alongside domestic challenges in India such as decelerating GDP growth, elevated inflation pressures, and insufficient reforms to attract foreign investors. While equity outflows were significant (around $16-17 billion based on reports), debt inflows of approximately $5-6 billion provided some mitigation, resulting in the moderated net figure confirmed by official NSDL data.

In comparison, the net FPI for the similar April-September period in FY 2023-24 stood at approximately $20.8 billion in inflows. For the same months in FY 2024-25, inflows were even higher at $22.12 billion. This progression underscores a peak in FPI optimism during these earlier periods, contrasting sharply with the 2025-26 outflows amid shifting global dynamics.

The recent trends indicate a challenging environment for FPIs, influenced by global uncertainties and geopolitical tensions, leading to significant withdrawals from the equity market while the debt market has seen some positive activity.

If the FPI outflows persist through October 2025 to March 2026 at a rate consistent with the trends observed over the past year (October 2024 to September 2025, where cumulative net outflows reached approximately -$23 billion), the remaining six months could see additional outflows of around -$11.5 to -$14 billion. This extrapolation assumes an average monthly net outflow of -$1.9 to -$2.3 billion, factoring in mixed monthly patterns but emphasising continued equity selling pressure amid high valuations, a strong US dollar, persistent trade tensions, and limited domestic stimulus impacts. Debt inflows, which have offset some equity outflows (e.g., ~$5.7 billion in calendar 2025 YTD), might moderate the pace if global bond index inclusions and attractive yields sustain, but in a no-reversal scenario, they are unlikely to fully counteract the trend.

Combining this with the partial FY 2025-26 outflow of -$3.25 billion (April-September 2025), the total net FPI outflow for the full FY 2025-26 could emerge in the range of -$14.75 to -$17.25 billion. This figure represents a severe but plausible extension of current dynamics, exceeding the outflows seen in FY 2021-22 (-$16.41 billion) and potentially marking one of the highest annual nets in recent history, though it stops short of catastrophic levels due to historical precedents where mid-year shifts (e.g., rate cuts or earnings recoveries) have occasionally stemmed the bleed.

Impact Of Rupee Depreciation On FPIs

With 1 USD at Rs. 88+ in September 2025, a falling rupee erodes FPI returns. Investments made at lower USD-INR rates yield fewer dollars upon exit, amplifying losses if markets dip. This currency risk prompts preemptive withdrawals, as seen in 2024-25 outflows coinciding with rupee weakness. However, a weaker rupee can attract FPIs if it boosts export competitiveness, enhancing corporate earnings.

Interplay Between FDI And FPI Flows: FY 2013-14 To FY 2024-25

FDI and FPI flows often correlate positively with economic confidence but show inverse movements during stress. No direct “switching” by the same investors is tracked, but aggregate data suggests FPI withdrawals (short-term) can precede FDI dips if crises persist.

Indicators And Messages From FDI/FPI Withdrawals

Withdrawals signal economic headwinds: slowing GDP, inflation spikes, policy uncertainty, or global events like trade wars. For markets, they hint at overvaluation corrections, reduced liquidity, and bearish sentiment. In India, FPI exits often precede index drops (e.g., Nifty falls post-2021 outflows), warning of capital flight risks.

Why Withdrawals Align With Crises, Overvaluation, And Scrutiny Avoidance

Claims that FDI/FPI withdrawals are purely profit-taking overlook timing. Exits rarely occur in bull markets; instead, they cluster during downturns when risks escalate—e.g., 2022 Ukraine crisis or 2024-25 global slowdown.

Why not earlier? Investors ride momentum until triggers (e.g., rate hikes) expose vulnerabilities. During overvaluation, withdrawals before IPOs or public sales allow foreigners to offload at peaks, sidestepping scrutiny from regulators or locals.

If India’s market underperforms Asia (e.g., 2025 losses amid China recovery), withdrawals reflect distress salvage, not profits—cutting losses on depreciating assets. This herd exit amplifies crashes, signaling systemic issues like weak fundamentals rather than opportunistic gains.

In detail, 2024-25 outflows amid 10% Nifty drop underscore salvage: FPIs faced currency losses (rupee -5% YoY) and overvalued PE ratios (25x+), prompting exits to preserve capital amid Asia’s cheaper alternatives (e.g., Japan at 15x PE).

Risks Of DII Bubble Amid FPI Withdrawals

Domestic Institutional Investors (DIIs) often counter FPI sales with buys, stabilising markets but risking DII Bubble. In 2024-25, DII inflows propped indices despite FPI exits, inflating valuations. Risks include: asset mismatches (e.g., insurance funds in volatile equities), herd buying ignoring fundamentals, and eventual bursts from external shocks.

Retail investors, comprising 90%+ losers over a decade, exacerbate this. Below is a table of estimated percentage of retail traders incurring net losses (primarily in F&O, per SEBI studies):

Year	% Losing Money	Reasons
2014	~85%	Lack of education, high leverage in derivatives, market volatility post-global recovery.
2015	~87%	Currency fluctuations, oil crash impacts.
2016-2019	~88-90%	Speculative F&O bets, ignoring long-term investing; rise in retail via apps.
2020	89%	Pandemic volatility, overtrading.
2021	89%	Bull run euphoria leading to losses on corrections.
2022	90%	Global tightening, inflation.
2023	90%	Geopolitical risks, rate hikes.
2024	91%	F&O losses at Rs. 750 bn; gambling mindset.
2025 (YTD)	91%	Continued F&O traps, Rs. 1.06 tn losses; high valuations.

Reasons: 70%+ retail volume in F&O (zero-sum game), poor risk management, emotional trading. A 2025-26 DII Bubble Burst—triggered by recession or rate cuts—could wipe 20-30% off indices, hitting retail hardest via direct holdings/MFs. This cycle resembles a Ponzi: inflows sustain highs, but unsophisticated retail (lured by ads) funds exits of smart money, leading to crashes. Not fraud per se (regulated by SEBI), but systemic flaws like lax KYC for F&O and hype create Ponzi-like traps, eroding trust.

Net FPI And Net FDI Figures

Net FPI

(a) FY 2023-24: +$40.96 billion (robust inflows driven by post-pandemic recovery and market rallies).

(b) FY 2024-25: +$2.37 billion (sharp decline due to global rate hikes, election uncertainties, and shifts to other emerging markets).

Net FDI

(a) FY 2023-24: +$10.1 billion (gross inward: ~$71.3 billion; repatriation/disinvestment: ~$44.5 billion; OFDI: ~$16.7 billion).

(b) FY 2024-25: +$0.35 billion (gross inward: $81.0 billion; repatriation/disinvestment: $51.5 billion; OFDI: $29.2 billion—a 96% YoY decline due to heightened repatriations from IPO exits and surging OFDI amid global opportunities).

Focused Insights: FPI and FDI Dynamics from April 1, 2025, to September 28, 2025

The first half of FY 2025-26 (April 1 to September 28, 2025) highlighted contrasting foreign investment trends in India, influenced by global factors such as US tariffs, rupee depreciation, and market valuations. Net FPI outflows reached approximately -$3.25 billion (around Rs 28,600 crore), primarily from equity sell-offs offset by debt inflows. Early inflows in April (~$0.53 billion net buying, focused on sectors like financials amid post-election optimism) reversed from July onward, with September seeing Rs 7,945 crore (~$0.9 billion) exits. Key drivers included US-India trade tensions with up to 50% tariffs on certain exports, global risk aversion, Nifty PE ratios averaging 21.7-23.2, and a 3-5% rupee slide to 88+ levels, impacting dollar-denominated returns. Sectoral outflows affected IT and FMCG significantly (Rs 60,000-70,000 crore combined in fiscal H1), while hybrids experienced minor inflows.

Net FDI demonstrated resilience, estimated at +$10.75 billion up to July. Gross inflows rose 13% to $18.62 billion for April-June, driven by services (fintech, outsourcing) and computer hardware/software (15-18% share), supported by PLI schemes and AI investments. April recorded gross $8.8 billion and net $3.9 billion, aided by slowed repatriations (down 23% YoY). Repatriations/disinvestments (~$20-25 billion) and outward FDI (~$10-12 billion) moderated nets, reflecting project maturities and Indian firms’ international expansions. Sectors like telecom and automobiles attracted $6-8 billion amid EV transitions, though trade disputes could affect future inflows. FDI’s long-term orientation helped counter FPI fluctuations, while outward FDI surged, signaling capital shifts abroad.

DII inflows surpassed Rs 5 lakh crore (~$58 billion) in calendar 2025 up to September, offsetting FPI exits and contributing to Nifty’s ~15% gains despite volatility, though this raised concerns of DII Bubble by Praveen Dalal, CEO of Sovereign P4LO. The valuations of Indian stock is detached from earnings amid export sector downgrades. Retail investors faced losses of Rs 1.06 trillion (with 91% as net losers), largely from F&O trading, heightening risks of market corrections if external pressures intensify.