FII selling nears end after $53bn India outflows

Why foreign flows are back in focus

Foreign portfolio flows are again shaping sentiment on Dalal Street after a long stretch of heavy selling and intermittent bouts of buying. A Goldman Sachs India strategy report argues that the worst of foreign selling in Indian equities may be nearing exhaustion, but it also flags reasons a sustained re-entry could take time. The assessment matters because overseas ownership levels and incremental flows often influence near-term liquidity, valuation comfort, and market leadership.

The report, titled Outflows Fade, But Re-entry Waits, comes after record foreign outflows in recent months. It highlights that foreign ownership in Indian equities has fallen to a 14-year low and has slipped below domestic institutional ownership for the first time in more than two decades. That shift underscores how domestic institutions have absorbed supply during the selling phase, even as global investors reassessed India’s risk-reward.

Goldman Sachs: selling may be near exhaustion

Goldman Sachs said various measures of flows, positioning, and ownership trends suggest foreign flows are now close to downside scenarios. In its words, “the bulk of foreign selling is likely over.” The brokerage also put a near-term band around what could still be left if selling resumes, estimating downside risk of further foreign selling at around $1 billion to $1 billion.

At the same time, the report cautioned against expecting an immediate reversal. Even if oil prices soften, Goldman Sachs said empirical evidence suggests FII flows do not immediately return when oil prices fall. The report’s core message is that exhaustion of selling pressure does not automatically translate into a new buying cycle.

How big the outflows have been

Goldman Sachs estimated that foreign institutional investors have sold $12 billion worth of Indian equities so far in 2026, surpassing the previous annual sell-off record. It also pegged cumulative foreign selling since the September 2024 market peak at $13 billion.

Other datasets in the provided context show how volatile foreign activity has been across months and market phases. In one update, global funds bought nearly $1.1 billion of local shares so far in February, which would put inflows on track for the strongest since June. In another, FPIs net purchased $1.65 billion worth of Indian stocks in October after remaining net sellers for three months, even as they were still described as having offloaded $15.97 billion overall.

Why re-entry could take time: valuations and earnings visibility

Goldman Sachs pointed to expensive valuations and weak earnings visibility as key reasons foreign capital may not rush back. The report said earnings revisions have become an increasingly important variable guiding foreign flows in Indian equities. When forward earnings are harder to underwrite, investors tend to demand either better pricing or clearer catalysts before rebuilding positions.

The report also stated that India currently offers a “less attractive risk/reward” compared with several North Asian markets because Indian equities continue to trade at significantly higher valuations. In addition, it flagged investor concerns about the potential impact of artificial intelligence on market positioning and earnings expectations, which it linked to a broader shift in global capital flows toward North Asian markets.

Signs of returning appetite: buying spurts and block trades

Separate reporting in the supplied material points to periodic re-risking by foreign investors. Reuters reported that international investors were beginning to return to Indian equities, drawn by block trades totaling $1.5 billion in May. That monthly figure was described as the highest in nearly a year and a sharp jump from $1.22 billion recorded in April.

Those May block trades included a $1.51 billion divestment of a stake in ITC by British American Tobacco, a 5.7% stake sale in IndiGo worth about $1.36 billion by co-founder Rakesh Gangwal, and $1.5 billion of Bharti Airtel shares sold by Singtel. Reuters also cited data indicating foreign investors acquired about $1 billion worth of Indian stocks across April and May combined, after nearly $19 billion was withdrawn between October and March following record highs in September.

2025: record equity outflows, but debt attracted money

The context also shows that the foreign flow story is not only about equities. Foreign investors pulled out a record Rs 1.6 trillion (US $18 billion) from Indian equities in 2025, described as the worst year for equity flows, amid volatile currency movements, global trade tensions including potential US tariffs, and stretched valuations.

As of December 26 (year referenced as 2025 in the dataset), foreign portfolio investors had taken out Rs 1.58 lakh crore from equities while investing Rs 59,000 crore (0.59 lakh crore) in the debt market. The data also said 2025 exceeded the previous record equity outflow of Rs 1.21 lakh crore in 2022 and followed a marginal net inflow of Rs 427 crore (0.00427 lakh crore) in 2024. FPIs sold equities in eight of the 12 months in 2025, with buying limited to April, May, June, and October.

Where foreign portfolio capital comes from

A separate snapshot in the provided text said that as of December 2025, total FPI equity assets under custody in India stood at Rs 74.26 lakh crore. It also said nearly 44% of that money is routed from the United States, making it the single largest source of foreign portfolio capital in Indian markets. The note added that Singapore (6.5%) and Luxembourg (7.4%) together control a meaningful chunk of flows, and that US-based FPIs hold around 44% of India’s equity assets, up from 34% in 2015.

These ownership and routing statistics matter because they influence how India is positioned within global portfolios and how quickly risk appetite can return when global macro conditions shift.

Market impact: what the flow swings change

Foreign flow cycles affect liquidity and leadership within the market, especially in periods dominated by large trades and index-linked activity. Reuters reported that foreign portfolio investors pumped about $1.11 billion into Indian equities over the last nine sessions in one instance, with the Nifty 50 rising 6.6% over the same period. Analysts also linked the buying to U.S. trade deal hopes, cheap corporate valuations in certain pockets, and India’s relative resilience to global tensions.

At the same time, the Goldman Sachs report frames a different near-term tension: selling pressure may be close to exhaustion, but re-entry is constrained by valuation and earnings concerns. That combination can create a market where flows become episodic, concentrated around blocks, large-cap opportunities, or macro headlines such as trade negotiations and interest-rate expectations.

Key data points at a glance

Analysis: what to watch from here

The Goldman Sachs framework suggests investors should separate two questions: whether incremental selling pressure is waning, and whether the conditions for sustained inflows are in place. On the first, the brokerage’s estimate that incremental downside selling could be limited to $1 billion to $1 billion implies a potentially lower risk of repeat, record-scale liquidation in the near term.

On the second, the barriers are clearer in the report and the broader context: higher relative valuations versus North Asia, weaker earnings visibility, and sensitivity to earnings revisions. Additional external swing factors cited in the supplied material include the trajectory of global interest rates, the timing and pace of rate cuts, developments around tariffs, and whether a moderation in US bond yields and a softer dollar support risk appetite.

Conclusion

Foreign selling in Indian equities has been intense since the September 2024 peak, and Goldman Sachs argues the bulk of that selling may now be behind the market. But the same report and related flow data suggest sustained foreign inflows could wait for clearer earnings momentum and more comfortable valuations, even if macro tailwinds such as trade developments improve. The next signals for investors will likely come from earnings revision trends, large-cap valuation resets, and the pace at which global funds rebuild India exposure after a period of record outflows.