Record Foreign Portfolio Investor (FPI) Equity Outflows of $18.4 Billion (≈₹1.6 Lakh Crore) in 2025 and Their Causal Impact on Nifty 50 Returns: Evidence from Granger Causality and Panel Regressions

Abstract India's equity markets in 2025 witnessed record net foreign portfolio investor (FPI) equity outflows of approximately 18.4 billion (₹1.6 lakh crore), surpassing the previous peak of $16.5 billion recorded in 2022, according to NSDL/SEBI data. Despite this unprecedented outflow, the Nifty 50 delivered a modest local-currency return of approximately 10–10.5%, while MSCI India returned only 2–4% in USD terms — its worst relative performance against emerging market (EM) peers in over a decade. This paper investigates the causal relationship between FPI equity outflows and Nifty 50 returns using two complementary econometric frameworks: (i) Granger causality tests on daily and weekly time-series data from 2020 to 2025, and (ii) sector-level panel regressions with fixed effects. We document a statistically significant but economically muted causal link from FPI flows to Nifty returns over the full sample, which weakens substantially in the DII-dominant post-2023 sub-period and becomes statistically indistinguishable from zero in the 2025-only window. Domestic institutional investor (DII) counterbalancing emerges as the principal absorber of FPI selling pressure. Our findings underscore the structural shift in India's equity market microstructure and have implications for capital flow monitoring, currency management, and investor portfolio diversification. Cite This Paper: NEHA ANIL AND ABEL JOPAUL V P (2026). "Record Foreign Portfolio Investor (FPI) Equity Outflows of $18.4 Billion (≈₹1.6 Lakh Crore) in 2025 and Their Causal Impact on Nifty 50 Returns: Evidence from Granger Causality and Panel Regressions". INTERNATIONAL JOURNAL OF RESEARCH IN MANAGEMENT (IJRM), vol. 16, no. 1, 2026, pp. 16/1-16/11. DOI: https://dx.doi.org/10.5281/zenodo.18758481 Keywords: FPI outflows, Nifty 50 returns, Granger causality, panel regression, emerging markets, domestic institutional investors, capital flow dynamics