FPIs may stay net sellers in 2026: 7 key risks

Why foreign selling is back in focus

Foreign portfolio investors (FPIs) have remained aggressive sellers of Indian equities, and market participants expect the pressure to continue amid a challenging macro backdrop. Experts cited elevated crude oil prices, inflation concerns, uncertainty around interest rates, prospects of weak corporate earnings, a depreciating rupee, and the absence of a clear “AI trade” tailwind in India.

The core issue, as multiple market voices framed it, is return expectations. When global investors compare India with other emerging markets, they are weighing not just growth but also currency stability, valuations, and the likelihood of earnings upgrades. Over the past 12 to 18 months, India’s relative underperformance and elevated valuations have made that comparison tougher.

What the latest flow data shows

NSDL data cited in the reports shows FPIs have sold Indian equities worth over ₹2,20,000 crore so far in 2026. This follows equity selling of ₹1,66,286 crore in the previous year.

Jefferies’ GREED & fear note, as referenced, also quantified the selling in dollar terms. It said foreign investors have already sold a net US$11.1 billion worth of Indian equities so far in 2026, exceeding last year’s record outflow of US$18.8 billion.

In another data point from the same set of reports, Foreign Institutional Investors were said to have sold Indian stocks worth ₹1.04 lakh crore in the first three months of 2026, with March alone accounting for over ₹60,000 crore.

April outflows and the Nifty’s six-week slide

Selling extended into April. One report said FPIs withdrew ₹19,837 crore from Indian markets in April.

The same narrative linked sustained foreign selling and global risk-off cues to a sharp market move: the Nifty 50 index fell 11.2% over six weeks, with rising oil prices and global tensions weighing on sentiment.

Another update noted that foreign investors pulled out ₹14,231 crore so far this month, driven by persistent global macroeconomic uncertainties.

Geopolitics and oil: the US-Iran conflict factor

A key trigger cited was the US-Iran conflict that began on 28 February 2026 and the subsequent disruption to shipping through the Strait of Hormuz. The Strait is described as a narrow channel that handles roughly 20% of the world’s oil shipments.

During the episode, Brent crude briefly crossed US$120 per barrel before easing. For India, the sensitivity is direct because the country imports over 85% of its oil. Higher oil prices can feed into inflation and pressure the current account, both of which matter for foreign investors assessing risk-adjusted returns.

Inflation and rate uncertainty: why global yields matter

Analysts quoted linked selling pressure to persistent global macroeconomic uncertainties, especially concerns around inflation, interest rates, and geopolitical risks. Himanshu Srivastava, Principal - Manager Research at Morningstar Investment Research India, said uncertainty over the global interest rate trajectory remained a key factor influencing flows.

The reports also tied elevated crude prices and lingering geopolitical tensions, particularly in West Asia, to sticky inflation concerns. That, in turn, has forced investors to reassess expectations of near-term rate cuts by major central banks. A higher-for-longer rate backdrop tends to keep global bond yields firm, increasing the relative appeal of developed-market debt instruments and reducing the risk appetite for emerging market equities.

Rupee weakness and dollar returns

Currency moves have compounded the problem for overseas investors. One report stated the rupee has weakened to ₹93.73 against the US dollar this year, reducing returns for foreign investors when converted back to their home currency.

Another note added that the Indian rupee has depreciated nearly 7.5% against the US dollar since the announcement of US tariffs on April 4, 2025. This was highlighted as a major deterrent because rupee weakness can erode dollar-denominated returns even if Indian equity prices hold up in local terms.

V K Vijayakumar, Chief Investment Strategist at Geojit Investments, also pointed to currency depreciation and concerns over earnings growth in India as key factors driving outflows this year.

Earnings concerns and high valuations

Beyond macro and currency, earnings and valuations remain central to the FPI debate. Analysts at Emkay Global Financial Services were cited saying foreign investors remain sceptical about India Inc’s earnings outlook and are unwilling to increase exposure until there is visible improvement in growth trends and currency stability.

The reports also pointed to relatively high valuations compared with other emerging markets. One cited a Buffett ratio of around 125% to 130% during the period discussed, alongside muted corporate earnings in Q3FY26.

On the earnings and positioning side, the article set also referenced that FPIs sold nearly US$18.9 billion (₹1,66,000 crore) in 2025 amid repeated earnings downgrades, weak AI-led investment momentum, and expensive valuations. Selling pressure continued into January 2026 with net outflows of US$1.97 billion (₹35,890 crore), as per NSDL data.

AI-led rotation to Korea and Taiwan

The “AI trade” has been an important relative driver of flows. The reports noted that global investors have been shifting focus to AI-driven markets such as South Korea and Taiwan, which have heavier exposure to semiconductors and are seen as direct beneficiaries of the AI cycle.

In that context, India was described as potentially no longer the hottest emerging market trade in the near term as global investors chase the AI-led rally elsewhere.

Domestic flows as a cushion, and selective foreign interest

Jefferies’ Christopher Wood argued India remains structurally attractive despite foreign selling pressure, citing strong domestic participation and resilient midcap performance. The note highlighted domestic mutual fund inflows, SIP contributions, and pension money as an increasingly important cushion for Indian equities.

Even within foreign flows, the reporting suggested the picture is not uniform. Vijayakumar said FPIs have shown selective interest in segments such as power, construction, and capital goods. He added that mid-cap and certain small-cap stocks with strong earnings and growth potential continue to draw investor attention.

Key numbers at a glance

Policy and near-term signposts investors are tracking

The reporting also referenced India’s fiscal stance as a variable FPIs watch closely. It stated the Union Budget defended the fiscal deficit at 4.4% in FY26 and reduced it further to 4.3% in FY27, while keeping effective capex at 5.2% of GDP.

Separately, the Indo-US trade deal featured as a potential swing factor for sentiment, with commentary suggesting clarity on finer details would be watched closely by investors.

Conclusion

The reports collectively frame 2026’s FPI selling as the result of overlapping pressures: geopolitics and oil shocks, inflation and rate uncertainty, rupee weakness, and concerns around earnings and valuations, alongside a global rotation toward AI and semiconductor-heavy markets. At the same time, domestic inflows and resilient midcap performance are highlighted as stabilisers even during heavy foreign outflows.

Near-term attention remains on crude prices, global central bank signals on rates, currency stability, and any confirmed updates around trade and policy that could shift return expectations for overseas investors.