FPI outflows cross ₹2 lakh crore in 2026: key risks

Record foreign selling in early 2026

Foreign portfolio investors (FPIs) have recorded an unprecedented exit from Indian equities in the first few months of 2026, with multiple reports flagging net outflows crossing the ₹2 lakh crore mark. One data set showed nearly ₹2.1 lakh crore withdrawn in a little over four months till May 8, described as the worst yearly number since 1993, when foreign portfolio investing in Indian equities was allowed. Separately, NSDL data cited in other reports showed FPIs pulling out ₹1.92 lakh crore in the first four months of 2026. The scale of selling has already exceeded the total outflow recorded across the whole of 2025.

Foreign ownership hits a 14-year low

A JM Financial report highlighted that the selling has also shown up in ownership data. Aggregate foreign holding in Indian listed stocks fell to a 14-year low of 14.7%. The same report compared this with domestic institutions’ holding at 18.9%, underscoring how domestic pools of capital have become more prominent in ownership and flows.

How the outflows built up month by month

NSDL data showed FPIs were net sellers in all months of 2026 except February. January saw withdrawals of ₹35,962 crore, followed by an inflow of ₹22,615 crore in February, described as the highest monthly inflow in 17 months. The trend then reversed sharply in March, when outflows hit a record ₹1.17 trillion (₹1.17 lakh crore). Selling continued into April with an additional ₹60,847 crore of net outflows.

What triggered the risk-off trade

Market participants linked the sustained selling pressure to global macroeconomic headwinds and heightened geopolitical risks. The conflict in West Asia, rising crude oil prices, global tariff anxieties, and a stronger US dollar were repeatedly cited as key drivers. Higher oil prices revived global inflation concerns, which reduced expectations of near-term rate cuts and kept global bond yields elevated. These conditions generally push global investors toward a more defensive stance, especially in emerging markets.

Currency pressure and dollar returns

Analysts also pointed to currency depreciation as a direct hit to foreign investors’ returns. Sachin Jasuja, Head of Equities and Founding Partner at Centricity WealthTec, said the rupee’s slide from 85 to 95 against the dollar since January 2025 has weakened the equity case for foreign investors by eroding dollar returns. He noted that for a foreign investor, currency erosion can wipe out equity returns, and that a flat Nifty over the same period translates into an approximate 12% loss in dollar terms before volatility.

Crude oil, inflation and India’s macro sensitivity

Crude remained central to the narrative because India is a major oil importer. One report cited crude crossing $100 per barrel during the period, while another noted crude at $115 per barrel in the context of heightened global anxiety. Separate reporting on import costs highlighted a sharp rise in India’s crude basket, influenced by higher freight and insurance costs: average crude prices rising from $19 per barrel in February to $113 in March, and crossing $118 by April 20. Freight costs were reported rising from $1.60 per barrel to nearly $15 per barrel, with war risk insurance premiums rising as high as 3% of vessel value.

Valuations, earnings visibility and the AI overhang

Beyond macro and geopolitics, valuations and earnings expectations featured prominently. Vaqar Javed Khan, Senior Analyst Fundamental at Angel One, said the combination of crude above $100, rupee weakness toward ₹92 per US dollar, and renewed inflation and current account deficit concerns made India’s valuation look expensive, citing the Nifty trading around 21 times price-to-earnings. JM Financial also argued that earnings revisions have become an increasingly important variable guiding foreign flows, and that low visibility around a recovery could limit near-term re-buying. The report added that, relative to North Asian markets, India looks less attractive on risk-reward because it trades at significantly higher growth-adjusted valuations, alongside investor concerns around the potential adverse impact of AI.

What officials and institutions have flagged

The Union finance ministry, in its April 2026 monthly economic review, attributed outflows primarily to the equity segment amid heightened global risk aversion linked to the West Asia conflict. The Reserve Bank of India, in its April 2026 bulletin, also pointed to cautious sentiment driven by global trade tensions, uncertainty around the India-US trade deal, and the outbreak of the West Asia conflict. The RBI bulletin said sentiment turned positive after the India-EU free trade agreement and an interim India-US trade deal framework was announced, but deteriorated after the conflict escalated.

Key numbers at a glance

Market impact and what could change flows

JM Financial said “the bulk of foreign selling is likely over” after the recent record outflows, but also cautioned that foreign funds may not return immediately even if oil prices fall, pointing to the early-April oil correction that did not bring foreign buying back. Anand K. Rathi, Co-Founder of MIRA Money, said the move reflects a heightened risk climate globally rather than a structural weakness in the Indian economy, citing higher crude, geopolitical uncertainty and US Treasury yields near 4.4% as making developed-market returns more attractive. The US 10-year yield was reported hovering between 4.37% and 4.45%.

Conclusion

Early 2026 has seen record FPI outflows from Indian equities, with the exit linked to West Asia-related risk, a stronger dollar, high crude prices, elevated US yields, and concerns on valuation and earnings visibility. Key markers to watch, as cited by market participants, include rupee stabilisation, crude moving below $10 per barrel, valuation de-rating, and greater clarity on US tariff uncertainty and trade arrangements.