FPI Selling: 7 Numbers Behind India’s 2026 Shift

The new market split: foreigners sell, locals buy

Foreign portfolio investors (FPIs) have been heavy sellers of Indian equities, while domestic institutional investors (DIIs) have emerged as major buyers, supported by strong SIP inflows. The shift is visible in ownership data for NSE-listed companies, where foreign ownership has fallen to its lowest level in nearly two decades. At the same time, domestic mutual funds and other local institutions have steadily increased their share.

This change matters because it alters who is setting the marginal price in Indian equities. It also changes how investors interpret flows during volatility. The data points in recent market commentary and depository reports show that the story is not just about equity returns, but also about currency moves and global risk-free yields.

India’s relative underperformance has widened

Globally, the Indian stock market has been lagging. The Nifty 500 is down roughly 7% year-to-date, while the S&P 500 has gained close to 5% over the same period. That implies a performance gap of over 10 percentage points.

For asset allocators comparing regions, relative returns can influence incremental flows. The underperformance also feeds into dollar-based outcomes for foreign investors when combined with rupee depreciation. In that sense, the equity drawdown and currency move have worked together to reduce foreign investors’ comfort with Indian risk in 2026.

The rupee move has turned it into a currency story

The rupee has slid from 85 to 95 against the dollar since January 2025. That decline has affected dollar-denominated returns even if local prices are stable. Market participants have also linked outflows to rising hedging costs, alongside currency volatility.

The macro backdrop in the US has remained a competing pull. Sticky US inflation has kept the Federal Reserve’s rate high, making Treasury yields look safer than emerging market risk for some portfolios. Several notes also argue that the preference for risk-free yields has made it harder for Indian equities to attract fresh foreign allocations during this cycle.

FPI ownership drops to multi-year lows

FII or FPI ownership in Indian stocks has dropped to around 16%, described as the lowest in nearly two decades in the material provided. One data point cited March 2026 FPI ownership at 16.13%, called a 14-year low. Another reference from a JM Financials monthly report for April 2026 put FPI ownership at 14.7%, the lowest level since June 2012.

A separate market comment said there is “concrete evidence” of FPI ownership at roughly 15.8%, reflecting active reduction in local exposure. Across these figures, the direction is consistent even when the exact percentage differs by source or month. The key takeaway is that foreign ownership has fallen to a multi-year trough across NSE-listed equities.

Domestic institutions overtake foreigners

For the first time, FPI ownership has fallen below domestic institutional ownership in the narrative provided. DII ownership is cited at an all-time high of 18.9% in one section. Another data point for March 2026 put domestic institutional ownership at 19.24%, described as a record high.

The text also states that Indian institutional investors, including mutual funds, SIPs, and insurers absorbed nearly 90% of the foreign selling, helping the market avoid a disorderly crash. The steady bid from domestic savings has therefore become a central part of how the market has digested persistent foreign outflows.

The scale of selling in 2026 and recent years

Depositories data cited in the material said foreign funds sold Indian equities worth ₹2.8 lakh crore in calendar year 2026 so far. Another section described FPIs pulling nearly ₹2.2 lakh crore so far in the year as of 22 May, and nearly ₹1.8 lakh crore in FY26, described as the highest outflow in 34 years.

The same collection of notes highlighted the persistence of selling pressure. Between January 2024 and December 2025, cumulative FII secondary market outflows exceeded $16 billion, and FPIs were net sellers in all but two quarters since March 2023. Separately, 2025 outflows were cited at ₹1.66 lakh crore, and January 2026 saw net outflows of ₹0.359 lakh crore.

Equities still dominate foreign holdings versus debt

Despite the outflows, equities remain far more important for FPIs than debt in India. Assets under custody data in the text showed FPIs held Indian equity assets worth ₹67.7 lakh crore, compared with debt investments of ₹6.2 lakh crore.

That split suggests foreign positioning is still primarily an equity story. It also explains why changes in equity risk appetite, valuations, and currency expectations can have an outsized impact on headline flow numbers and ownership percentages.

Key data points at a glance

Market impact: what has changed for Indian equities

The immediate market impact described is that domestic flows have acted as a counterweight to foreign selling. The claim that DIIs absorbed nearly 90% of foreign selling indicates that local institutions have provided liquidity during persistent outflows. This has influenced market stability even as ownership shifted.

At the same time, the material points to multiple drivers of foreign underweighting: weak dollar-denominated returns, a depreciating rupee, India’s tax structure, high valuations compared to global peers, and lagging earnings growth. It also notes that foreign investors have continued to pare holdings in financial companies, with FII ownership in lenders such as HDFC Bank, ICICI Bank and Kotak Mahindra Bank falling sharply over the past two years.

Analysis: why this ownership shift matters

A lower foreign ownership share changes how sensitive the market may be to global risk-on or risk-off phases. When the marginal buyer becomes more domestic, flows can track local savings patterns more closely, including SIP behaviour, insurer allocation decisions, and mutual fund cash deployment.

But the data also underlines that foreign capital remains large in absolute terms, given equity assets under custody of ₹67.7 lakh crore. So while the ownership percentage has fallen to multi-year lows, foreign positioning still matters for sector leadership and for periods when global funds re-risk. The central question raised by the material is not only where capital is going, but why it is becoming less comfortable staying in India, particularly amid currency pressure and valuation concerns.

Conclusion

The 2026 flow picture is defined by heavy FPI selling alongside strong domestic absorption, pushing FPI ownership down to multi-year lows while DII ownership reaches record highs. India’s equity underperformance versus the US and the rupee’s slide from 85 to 95 per dollar since January 2025 have reinforced the pressure on dollar-based returns. With equities still the dominant component of FPI assets under custody, the next set of ownership and flow updates from depositories and monthly custody reports will remain key markers to watch.