FPI returns sink as rupee slides in 2026

What changed for foreign investors

Foreign portfolio investors (FPIs) have seen returns from Indian equities deteriorate sharply over the past year as the rupee weakened and corporate earnings momentum cooled. Analysts said the combination has made India less attractive in dollar terms, even though local investors have kept market declines relatively contained in rupee terms. The Nifty 50 USD index, which tracks the benchmark in dollar terms, delivered a negative return of 13.41% over the past one year through 22 May, according to Bloomberg data. Over the same period, the Nifty 50 in rupees was down by about 4%. That currency and earnings mix has pushed FPI returns “into deep red”, and contributed to sustained selling from overseas investors.

Nifty in dollars versus rupees

The gap between rupee returns and dollar returns is central to the latest FPI retreat. A roughly 4% fall in the rupee-denominated benchmark looks modest on its own, but the rupee’s steep depreciation over the year worsened outcomes when translated into dollars. Analysts cited lacklustre earnings growth and a weakening currency as the two key drags. The result has been a sharp divergence between what a domestic investor experienced and what a dollar-based investor saw. This divergence is also feeding into relative allocation decisions at a time when US equity earnings trends have looked stronger in parts of the period.

Heavy FPI selling, but domestic money steps in

FPIs withdrew ₹365,000 crore from Indian secondary markets between 22 May 2025 and 22 May 2026, the report said. Over the same period, mutual fund-led domestic institutional investors (DIIs) net invested ₹898,000 crore. Despite that domestic support, the Nifty still slipped almost 4% over the year to 23,719.30 through Friday. Analysts also pointed to ample domestic liquidity as a factor that gives foreign investors an easier exit route when they want to reduce exposure.

FPI ownership hits a 17-year low

The sustained selling has also shown up in ownership data. Following heavy FPI selling, foreign ownership of NSE-listed firms has fallen to a 17-year low of 15.8%, as per exchange data cited in the report. That metric matters because it reflects the degree of overseas participation in India’s listed equity market. Lower ownership can reduce the immediate impact of future outflows, but it also signals weaker foreign risk appetite over the period. The shift also highlights how domestic flows have become a larger stabilising force in the market.

Currency slide accelerates amid West Asia tensions

The rupee’s move has been unusually sharp in the past year compared with recent averages. The currency fell 10.15% over the past one year through May. By comparison, the average annual depreciation between May 2023 and May 2026 was 4.5%, and it was 4.8% over a five-year time frame, the report said. On Tuesday, the rupee touched a record low of 96.6150 against the US dollar. So far this year, it has already lost 7%, with the selloff gathering pace since March, coinciding with the West Asia crisis and a crude oil shock.

Crude at $103 and current account concerns

Analysts linked part of the pressure to elevated oil prices. The report flagged crude at $103 a barrel as an added stress point that can worsen India’s current account dynamics and weigh on the currency. While the US-Iran conflict has intensified pressure, experts also said the rupee’s weakness predates the war. They pointed to broader concerns over slowing capital inflows at a time when India’s current account deficit is expected to widen. These factors together increase the currency headwind for foreign investors even when domestic equity prices are relatively stable.

Earnings growth slows and relative performance flips

The earnings backdrop has also become less supportive compared with the US. The report cited Bloomberg data showing Nifty earnings per share (EPS) growth of 12.33% at 2023-end and 18.06% at 2024-end, versus the Dow’s EPS growth of -10.37% in 2023 and 11.44% in 2024. The relationship changed in 2025, when Nifty EPS grew 15% while the Dow’s EPS grew 19%. In the current year to date through 22 May, the Dow continued to outperform with EPS growth of 13.99%, while Nifty EPS growth was -1.6%. This relative shift matters for global allocators comparing expected earnings strength across markets.

What market participants are citing

Nilesh Shah, managing director of Kotak Mahindra AMC, linked the earnings slowdown to a combination of factors. He cited an unfavourable base effect from calendar 2024, labour code changes that raised employee costs and compressed margins, rupee depreciation, and elevated crude due to Middle East tensions as contributors to weaker Nifty EPS growth in 2025. Those earnings trends, combined with the currency hit, have been a key part of the explanation for FPI outflows over the previous year and current year to date, the report said. The same mix is also why analysts see the pressure on foreign returns potentially continuing if oil prices and currency volatility persist.

Key numbers at a glance

Earnings comparison: Nifty versus Dow

Why it matters for Indian markets

The data shows how currency moves can reshape foreign investor outcomes even when benchmark declines in local terms are limited. It also underscores the growing role of domestic mutual funds and systematic investment plan (SIP) inflows in absorbing selling pressure, a point highlighted in the report’s key takeaways. At the same time, heavy domestic liquidity can make it operationally easier for overseas investors to cut exposure quickly when dollar returns turn unattractive. With FPI ownership already at a 17-year low, further shifts may increasingly depend on how earnings expectations and the rupee evolve alongside oil prices.

Conclusion

Over the past year through 22 May, a steep rupee depreciation and softer earnings growth combined to push Nifty’s dollar returns far below rupee returns, coinciding with large FPI withdrawals from secondary markets. Domestic institutions have counterbalanced much of that selling, but not fully avoided a modest benchmark decline. The report points to elevated crude linked to West Asia tensions and broader concerns about capital inflows and the current account as ongoing pressures on the currency. Investors will be watching whether earnings growth improves and whether the rupee stabilises after hitting a record low of 96.6150 per dollar.