FPI selling in India: ₹2.2 lakh crore out in 2026

What is driving the renewed FPI caution

Foreign portfolio investors (FPIs) have stayed net sellers of Indian equities into 2026, and market watchers expect that stance to persist amid a tough macro backdrop. Experts cited elevated crude oil prices, inflation concerns, uncertainty around interest rates, and the prospects of weak corporate earnings as key reasons. Depreciation in the Indian rupee is also weighing on foreign return expectations because currency moves directly affect dollar-denominated gains. Another factor repeatedly flagged is the absence of a strong “AI trade” in Indian equities, at a time when global flows are chasing semiconductor and AI-linked markets.

The selling has mattered because persistent FPI outflows have been identified as one of the drivers of India’s equity underperformance, even as domestic investors keep buying. Market participants also point to India’s relative underperformance over the last 12 to 18 months and elevated valuations as additional headwinds for foreign allocations.

The scale of outflows so far in 2026

NSDL data shows FPIs have sold Indian equities worth over ₹2,20,000 crore so far in 2026, following equity offloading of ₹1,66,286 crore last year. Selling extended into April, when FPIs withdrew ₹19,837 crore from Indian markets. Separately, another data point in the same set of reports noted FPIs divested approximately ₹52,764 crore by March 10, after a net outflow of ₹1.57 lakh crore during 2025.

The combination of multiple timelines and datasets in market reporting underlines the same message: foreign risk appetite towards Indian equities has remained weak across months, and the selling pressure has been persistent rather than episodic.

A market move that reflected the pressure

The continued withdrawals coincided with a sharp correction in benchmark indices. Nifty 50 fell 11.2% in six weeks, with rising oil prices and global tensions affecting sentiment and market performance. This drawdown occurred even as domestic institutional investors (DIIs) continued to buy, helping absorb some of the supply created by foreign selling.

The divergence between FPI selling and domestic buying is increasingly central to how investors interpret market moves. Large, heavily owned index constituents tend to feel the impact of foreign selling more directly, while local inflows can provide relatively steadier support to parts of the midcap space.

Macro triggers: crude, inflation and rate uncertainty

Experts have described near-term macro concerns as valid. Elevated inflation and high crude oil prices can complicate the outlook for India’s current account and inflation trajectory. Uncertainty around interest rates, particularly in the context of global yields and risk sentiment, also shapes emerging market allocations.

One narrative highlighted a specific risk-off catalyst: the US-Iran conflict that began on 28 February 2026 and subsequent disruption to shipping through the Strait of Hormuz. In that telling, three factors combined: a global risk-off move, crude rising above $100 which raised inflation and current account concerns for India, and rupee weakness around ₹94.60 that reduced dollar returns and encouraged further exits.

Currency weakness and earnings doubts

Analysts and market veterans have linked the selling pressure to concerns around both earnings and the currency. A January 29 note from Emkay Global Financial Services, following meetings with US-based long-only and hedge funds, said investors remained sceptical about the earnings outlook and were unwilling to increase exposure until there was visible improvement in growth trends and currency stability. Emkay also flagged the rupee as an overarching concern for global funds.

The same set of reporting noted that the Indian rupee has depreciated nearly 7.5% against the US dollar since the announcement of US tariffs on 4 April 2025. This is significant for FPIs because a falling currency can offset equity returns when measured in dollars.

Valuation premium and the “AI trade” rotation

Valuations have also been cited as a deterrent, particularly when earnings visibility is weak. One view in the reports argued India trades at a premium to emerging market averages even after multiple compression over the past 15 months, raising the hurdle rate for overseas investors comparing India with other markets.

At the same time, global investors have been shifting focus to AI-driven markets such as Korea and Taiwan. The lack of an AI-led investment momentum in India was listed among the reasons FPIs stayed underweight, alongside repeated earnings downgrades.

Domestic flows as a cushion, with midcaps in focus

While FPI selling has been heavy, domestic flows have helped stabilise the market. Jefferies strategist Christopher Wood, in the GREED & fear report, said India may no longer be the hottest emerging market trade as global investors chase the AI-led rally elsewhere, but he still sees India as structurally attractive due to strong domestic participation and resilient midcap performance.

Jefferies also pointed to domestic mutual fund inflows, SIP contributions, and pension money as an increasing cushion for Indian equities. The report added that Indian midcap stocks remain one of the more attractive domestic segments even amid foreign selling.

Key data points at a glance

Market impact: what the flows mean for investors

Persistent FPI selling has been identified as a key reason for India’s underperformance, despite DIIs buying through the period. For indices, foreign selling can weigh more directly on large-cap stocks with higher overseas ownership. The reporting also indicates a split market where domestic flows offer support to certain segments, particularly midcaps, even as foreign participation weakens.

The macro triggers cited, especially crude moving above $100 and rupee weakness, directly affect foreign investor maths. Higher oil can feed inflation expectations, while a weaker rupee can reduce effective returns in dollar terms, making it harder for India to compete for global capital when other markets offer cheaper valuations or stronger AI-linked earnings narratives.

Why this matters now

The current setup combines several constraints at once: elevated crude, inflation and rate uncertainty, currency depreciation, and questions over earnings recovery. On top of that, global allocations appear to be rotating toward AI and semiconductor-heavy markets. In such conditions, experts expect FPIs may remain cautious and stay net sellers until some of these pressures ease.

Conclusion

FPIs have extended their selling streak in 2026, with NSDL data showing equity selling of over ₹2,20,000 crore so far this year, after large outflows in 2025. Domestic inflows have cushioned the market, but benchmarks have still reacted sharply at times, including a 11.2% Nifty 50 fall over six weeks. The next cues for foreign participation, as highlighted by experts and analysts, remain crude and inflation trends, the direction of interest rates, the rupee’s stability, and clearer evidence of an earnings recovery.