FII flows: Why foreign selling may persist in 2026

Ceasefire relief, but flows remain the key question

The ceasefire in West Asia helped cool oil prices and supported a steadier rupee, but market watchers are not reading it as an automatic trigger for foreign buying in Indian equities. Analysts at Ambit Institutional Equities say foreign institutional investors (FIIs) may not reverse their selling quickly. Their view is that the broader drivers of foreign allocation decisions are still in play, including valuations and relative return potential versus other markets. This matters because foreign flows have been a dominant narrative in 2026 as selling stayed persistent even when risk sentiment improved in parts of Asia. The gap between a calmer geopolitical backdrop and continuing India outflows is now the central tension for investors.

Ambit: worst of selling may be over, not a strong comeback

Bharat Arora, Director Strategy at Ambit Institutional Equities, said he would not be “too much enthusiastic” on FII flows. He added that the worst spell of selling could be over, but he does not expect FIIs to return “in great numbers” immediately. Ambit Capital’s broader stance is that foreign portfolio investor (FPI) flows are unlikely to come back meaningfully if valuations and opportunity costs remain unattractive compared with global peers. The message is not that India is structurally unattractive, but that global allocators are weighing alternatives more actively.

Opportunity cost: India versus AI and industrial revival themes

Nitin Bhasin, Head of Institutional Equities at Ambit Institutional Equities, framed the issue as a global reallocation choice. He said that if India becomes expensive and expected returns moderate to about 7-8 percent, or lower over shorter horizons, capital can naturally shift to markets offering more compelling opportunities. In his view, themes such as AI, technology and industrial revival elsewhere are influencing where global money goes. This is relevant because it links FII behaviour to global sector cycles rather than only India-specific news. It also helps explain why a ceasefire alone may not change the direction of flows.

Market structure call: range-bound large-caps, SMIDs under pressure

Bhasin said he expects large-caps to remain relatively flat over the next 12 months, and for small- and mid-caps (SMIDs) to underperform. He linked this to the absence of a “meaningful correction” in benchmark indices and the likelihood that earnings growth stays closer to 10 percent. He also said a large portion of that growth may come from a relatively small set of sectors, limiting broad-based participation. In that setup, he expects investors to prefer predictable cash flows and strong balance sheets. He added that valuations may not need to fall sharply, but investors need confidence that earnings growth can sustainably accelerate. Until that belief returns, he described the most likely scenario as range-bound markets with selective opportunities and a preference for quality and scale over speculation.

Other expert views: ceasefire is not enough on its own

P Krishnan, Managing Director and CIO, Equity Asset Management at Spark Asia Impact Managers, said it is not logical to expect the mere end of the US-Iran conflict to prompt FIIs to buy. He pointed to headwinds on the balance of payments and noted FIIs were sellers even before the conflict. Sugandha Sachdeva, Founder of SS WealthStreet, attributed sustained selling to India’s relative underperformance over the past 12-18 months, elevated valuations, and a shift in global capital toward Japan, South Korea and Taiwan. She said those markets are benefiting from the AI-driven investment cycle and offering better near-term earnings visibility.

What could stabilise flows: oil, risk appetite and geopolitics

Sachdeva said a reversal in FII flows would depend on easing geopolitical tensions, especially in West Asia, stabilisation or moderation in crude oil prices, and improving global risk appetite. She added that an immediate reversal in May looks unlikely without decisive easing in geopolitical risks, though flows could stabilise near term and gradually turn positive over the course of 2026 if global uncertainties recede and India regains relative appeal. Mahesh M Ojha, AVP Research at Kantilal Chaganlal Securities, said FII selling could pause in May, supported by resilient domestic fundamentals. He cited strong GST month-on-month collections as a sign of steady economic momentum, while noting that global challenges remain.

AI trade and “risk recalibration” framework

VK Vijayakumar, Chief Investment Strategist at Geojit Investments, said the AI-driven shift in global capital has become a key force shaping FII behaviour. He said the continuing momentum in the AI trade implies FIIs will continue to sell in India, potentially keeping large-caps “under check.” He also said rallies triggered by domestic political developments may be used by FIIs to sell more, with the global AI trade weighing on markets in the near term. Separately, analysts said the phase should not be read as foreign investors giving up on India, but as a period of “risk recalibration.” Bajaj Broking said the next phase of institutional flows is likely to be driven more by global macro variables than domestic headlines, with US-Iran negotiations, central bank commentary from the Federal Reserve and the Bank of Japan, and global energy prices among the key variables.

Flow snapshots and market levels being watched

Publicly cited trackers, including NSDL references in the commentary, indicated foreign selling continued through April. Between April 1 and April 23, 2026, FIIs sold over $1 billion in India, according to figures cited in the social media context. For 2026, total FPI selling cited so far stands at ₹1,87,439 crore, and another NSDL summary put cumulative 2026 outflows past ₹1.75 lakh crore as of April 25. One section of the commentary noted foreign investors have been selling on 150 of the last 240 trading days, especially into strength. Market technicians in the provided text also highlighted key Nifty 50 levels, including support at 22,700-22,400 and resistance at 24,303, while noting Nifty touched around the 22,000 level in the recent drawdown.

Key data points mentioned

Domestic flows: mutual funds provided a counterbalance

The transcript portion of the material pointed to strong domestic participation through mutual funds. It said active equity category saw net inflows of over ₹40,000 crore in March. It also said passive flows via index funds and ETFs together received inflows of ₹28,000 crore in March. The speaker suggested that FII selling “petering out” could be a first stage, but also said FIIs may not rush to buy given risk-reward versus other markets remains “not exciting enough.”

Market impact

The immediate market impact described in the material is a tug-of-war between improved sentiment after ceasefire hopes and continued foreign selling. FIIs were reported net sellers by ₹2,811 crore on a Wednesday, signalling that the ceasefire was not enough to bring foreign money back quickly. Another portion described a sharp sell-off after FIIs dumped ₹10,716 crore in a single day, with Brent crude back near $100 per barrel during the escalation. The same set of commentary linked near-term sustainability of any rally to progress in geopolitical negotiations, normalisation of energy shipments, and the trajectory of crude, the rupee and foreign flows. With foreign selling persisting, the text also warned that brief upticks can attract selling, keeping the market more range-bound.

Analysis: why the “ceasefire trade” did not flip flows

The shared theme across experts is that geopolitics is only one input into foreign allocation decisions. Ambit’s view stresses opportunity cost and valuations, while Vijayakumar points to the global AI-led capital cycle pulling money toward markets benefiting directly from that theme. The earnings lens also matters: Bhasin’s comments focus on growth being closer to 10 percent and concentrated in fewer sectors, which reduces the case for broad-based re-rating. Meanwhile, the cited flow data shows selling continued through April even as parts of the region saw risk sentiment improve, reinforcing the idea that India-specific flows need more than a headline improvement.

Conclusion

The ceasefire narrative has eased near-term pressure points like crude and the rupee, but multiple experts cited in the material do not expect a quick return of large foreign inflows. Investors are watching whether crude cools, the rupee stays stable, and global rates and risk appetite become more supportive. The next signals highlighted include progress in geopolitical negotiations and central bank commentary, alongside any evidence of broader earnings acceleration in India.