FPI outflows hit ₹2.2 lakh crore in 2026: Key triggers

Foreign Portfolio Investors (FPIs) have continued to cut exposure to Indian equities in 2026, with selling pressure extending into May. As of May 15, FPIs have withdrawn ₹27,048 crore from equities this month, taking total net outflows for 2026 to about ₹2.2 lakh crore (₹220,000 crore), according to NSDL data cited in market reports. The scale of the exit has brought foreign flows back into focus because sustained outflows can influence currency stability, domestic liquidity conditions, and market sentiment.

The pattern has been unusually consistent. FPIs were net sellers in all months of 2026 except February, when they briefly turned buyers. Market experts attribute the ongoing “risk-off” stance to a mix of global growth concerns, heightened geopolitical tensions, crude oil volatility, and tighter financial conditions in the US.

May selling adds to a heavy 2026 tally

The latest data shows FPIs have been net sellers of Indian equities in May as well, with net withdrawals of ₹27,048 crore so far. This comes after large outflows in March and April, indicating that the selling has not been limited to a single event-driven spike. The total outflow figure of ₹220,000 crore for 2026 has already surpassed the full-year outflows reported for 2025 in the same set of data.

In parallel, market watchers have flagged currency implications. Geojit Investments’ Chief Investment Strategist V K Vijayakumar said sustained FPI selling, along with a widening current account deficit, has exerted pressure on the rupee. He noted that the rupee was near 90 per US dollar at the beginning of 2026 and weakened to 96.14 by May 15.

Month-by-month: one exception in February

The year started with net selling in January, followed by a sharp turnaround in February, and then a record sell-off in March. February’s net buying of ₹22,615 crore was described as the highest monthly inflow in 17 months. But the relief proved temporary.

March recorded net outflows of ₹1.17 lakh crore (₹117,000 crore), described in the report as a record monthly withdrawal. The selling continued in April with net outflows of ₹60,847 crore and carried into May.

What is driving the outflows

Himanshu Srivastava, Principal - Manager Research at Morningstar Investment Research India, linked the outflow trend to “persistent uncertainty” around global growth and elevated geopolitical tensions across key regions. He also pointed to volatility in crude oil prices, which has weighed on risk appetite for emerging markets, including India.

Another key driver flagged by Srivastava is the relative pull of US assets. A stronger US dollar and elevated US bond yields have improved the appeal of developed-market, higher-yielding and perceived safer assets, prompting investors to adopt a more defensive stance. In this context, emerging market allocations tend to face pressure when global risk-adjusted returns tilt toward the US.

Inflation and rate-cut uncertainty adds to caution

Srivastava also highlighted concerns about the trajectory of global inflation and uncertainty over the pace and timing of future interest-rate cuts by major central banks. These uncertainties influence asset allocation decisions across markets, particularly when investors reassess duration risk, equity risk premiums, and currency risks at the same time.

This backdrop matters for India because FPI flows can be sensitive to shifts in global liquidity conditions and the level of real yields in the US. In periods where bond yields remain elevated, the hurdle rate for taking equity risk rises, especially for markets seen as more volatile.

Rupee weakness compounds the return equation

Currency moves have become a central part of the narrative in 2026’s foreign selling. Vijayakumar said the rupee’s depreciation has been sharp this year, and warned it could weaken further if FPI outflows persist and crude prices remain elevated.

Separate market commentary in the provided material also said the rupee slid from 85 to 96 against the US dollar since January 2025, eroding dollar returns for foreign investors. It noted that even if the Nifty is flat over a period, currency depreciation can turn the effective dollar return negative for overseas investors.

Crude oil and geopolitical risks in focus

Market experts also pointed to West Asia tensions pushing crude oil above $100, adding another macro risk for India as a major oil importer. Higher crude prices can complicate inflation dynamics and widen external deficits, which can in turn feed into currency concerns.

In risk-off phases, these factors can reinforce each other: geopolitical shocks push up crude, higher crude worsens macro expectations for import-heavy economies, and currency weakness makes equity returns less attractive to foreign investors measuring performance in dollars.

AI-led capital rotation away from India

The report also highlighted a rotation toward artificial intelligence-focused companies globally, which has diverted capital away from markets such as India that are perceived to be lagging in the AI theme. Vijayakumar said this trend could reverse if the AI trade, which he said “appears to be in bubble territory,” eventually cools off.

The broader comparison in the material noted strong performance in some Asian peers in dollar terms during 2026: Taiwan’s market surged nearly 40%, South Korea’s Kospi rallied 62%, Japan’s Nikkei gained 18%, and China’s Shanghai Composite rose 7%. The same context stated that India’s benchmark indices have declined.

Domestic investors absorb much of the selling

One stabilising element cited is the role of domestic institutional investors (DIIs). During Q1 of calendar year 2026, DIIs invested $17.2 billion in equities, supported by steady SIP inflows, and absorbed nearly 90% of foreign outflows, according to the report. It also said FII ownership has fallen to a two-decade low, dropping below DII ownership for the first time in recent history.

This domestic bid has helped cushion price impact, even as foreign selling has remained heavy. But it does not remove the broader macro effects that can show up through currency pressure and shifting risk perception.

Why the 2026 outflow number stands out

NSDL-linked data in the material puts 2026’s outflows at about ₹220,000 crore by mid-May. The same context compares this with ₹1.66 lakh crore (₹166,000 crore) of outflows for the full year 2025 in one reference point, while another portion of the material cites ₹2.4 lakh crore (₹240,000 crore) for 2025 and ₹1.29 lakh crore (₹129,000 crore) for 2024. Regardless of the reference used, the common takeaway is that 2026 has seen a rapid pace of withdrawals within the first few months.

Conclusion

FPIs have remained net sellers in Indian equities through most of 2026, taking year-to-date outflows to about ₹2.2 lakh crore (₹220,000 crore) by mid-May, with March marking the sharpest monthly exit. Experts have tied the trend to global growth worries, geopolitical risks, crude volatility, a stronger dollar, and elevated US bond yields, alongside AI-led global capital diversion. Market participants are now watching the same variables cited in the reports - crude prices, the rupee’s direction, and global rate expectations - for signals on whether the pace of selling begins to ease in the second half of 2026.