FPI outflows hit ₹2.2 trillion; rupee slides to 96.14

Selling continues in May as risk appetite stays cautious

Foreign Portfolio Investors (FPIs) have continued to cut exposure to Indian equities, with net outflows of ₹27,048 crore so far in May. The continued selling points to a cautious stance among global investors as macro conditions shift and geopolitical uncertainty remains elevated. NSDL data cited in the report shows cumulative equity outflows by FPIs in 2026 have reached ₹2.2 trillion. The scale matters because it has already overtaken the full-year selling seen in 2025. Market participants are watching whether the trend eases as global rates, crude prices, and currency moves set the risk tone for emerging markets.

2026 outflows already exceed the whole of 2025

According to the NSDL data referenced, FPIs have pulled out ₹2.2 trillion from Indian equities in 2026 so far. That compares with ₹1.66 trillion withdrawn during the whole of 2025. Another data point in the report also cites 2025 outflows at ₹1.7 lakh crore, highlighting that the current year’s exit is meaningfully higher even allowing for minor differences across summaries. The report also notes that the selling trend has stayed largely consistent through 2026, with FPIs turning net buyers only in February.

April saw heavy selling before the May continuation

The report flags that selling continued in April, with net outflows of ₹60,847 crore. May has followed with withdrawals already crossing ₹27,000 crore, with the month-to-date figure at ₹27,048 crore. Taken together, March, April, and May form the core of the recent pressure window referenced across the report’s summaries. This pattern has kept attention on how foreign flows interact with domestic buying and broader financial conditions.

Global growth concerns, geopolitics, and crude oil volatility

Himanshu Srivastava, Principal - Manager Research at Morningstar Investment Research India, attributed the persistent outflows to uncertainty around global growth, elevated geopolitical tensions across key regions, and volatility in crude oil prices. These factors, he said, have weighed on risk appetite for emerging markets, including India. Crude volatility is closely tracked because of its spillover into inflation expectations, current account dynamics, and currency moves. With geopolitical risks still in focus, investors have preferred clearer visibility in asset allocation decisions.

Stronger US dollar and high US yields tilt flows to developed markets

Srivastava also highlighted the strength of the US dollar and elevated US bond yields as key drivers behind the selling. Higher returns in developed markets, combined with a “safer positioning” in dollar assets, can prompt global investors to adopt a more defensive stance. The report adds that concerns around inflation and uncertainty over the timing and pace of interest rate cuts by major central banks continue to influence capital allocation globally. For emerging markets, this mix can reduce incremental demand even if domestic fundamentals are stable.

Rupee weakness comes into sharper view

Geojit Investments Chief Investment Strategist V K Vijayakumar said sustained FPI selling, along with a widening current account deficit, has put pressure on the Indian rupee. He pointed to a sharp move in the exchange rate during the period cited. At the beginning of the year, the rupee was at 90 to the US dollar. On May 15, it breached the 96-mark to touch 96.14, according to his statement quoted in the report. Vijayakumar cautioned that the rupee could weaken further if foreign outflows persist and crude prices remain elevated.

AI-led global capital rotation also pulls allocations away

Vijayakumar also cited a global shift in capital towards artificial intelligence-focused companies. According to him, that rotation has reduced allocations to markets such as India, which are perceived as lagging in the AI-driven investment cycle. He added that this trend could reverse if the AI trade, which he described as appearing to be in “bubble territory”, eventually cools off. The key point for Indian equities is that global thematic rotations can affect flows even when domestic narratives are unchanged.

Foreign ownership at multi-year low, while reports flag limited downside

A JM Financial report cited in the text noted that aggregate foreign holding in Indian stocks fell to a 14-year low of 14.7%, compared with domestic institutions at 18.9%. The same section stated that till May 8, FPIs had net taken out nearly ₹2.1 lakh crore, describing it as the worst yearly number since 1993, the year these fund managers were allowed to invest in domestic stocks. Separately, a Goldman Sachs report cited in the text said the intensity of FPI selling has slowed, but it may take time before foreign funds start buying again. Goldman estimated the downside risk of incremental foreign selling at about $1-5 billion, translating to nearly ₹50,000 crore at the upper end, while also noting impediments to near-term re-buying.

Key data points at a glance

Market impact and what investors are tracking

The immediate market takeaway is that sustained foreign selling is being linked, by market experts quoted in the report, to global macro variables rather than a single India-specific trigger. For equity investors, the focus is on whether the pace of outflows stabilises as the US dollar, US yields, and crude oil prices evolve. For currency markets, the combination of outflows and a widening current account deficit, as cited by Vijayakumar, is a key watch point. The interplay between foreign selling and domestic ownership is also in focus, given the JM Financial data on FPI holdings at 14.7% versus domestic institutions at 18.9%.

Conclusion

Foreign investors have remained net sellers in Indian equities in 2026, with May outflows at ₹27,048 crore and year-to-date outflows reaching ₹2.2 trillion, exceeding the full-year withdrawal seen in 2025. With the rupee touching 96.14 per dollar on May 15, investors will closely track global rates, crude oil moves, and any shift in risk appetite that could change the direction of flows.