Foreign portfolio investors () have remained persistent sellers of Indian equities in 2026, exerting pressure on both the domestic stock market and the rupee amid elevated crude oil prices, geopolitical uncertainty, and a challenging global investment environment.
According to data, FPIs have sold Indian equities worth ₹2.28 lakh crore through the secondary market so far this calendar year, already exceeding the total outflows recorded in 2025. Meanwhile, investments through the primary market have remained relatively modest, with year-to-date inflows of ₹12,770.59 crore.
Nitant Darekar, Research Analyst at Bonanza, noted that FPIs have withdrawn more than ₹2 lakh crore from Indian equities in CY2026, pushing foreign ownership to a nearly two-decade low of around 16%.
The sustained outflows come despite India’s strong long-term economic growth prospects. Overseas investors have largely stayed on the sidelines in recent months due to concerns over slowing corporate earnings growth, rupee depreciation, higher global bond yields, and more attractive opportunities in competing markets.
Market experts believe a meaningful revival in FPI inflows will require a combination of stronger earnings growth, macroeconomic stability, currency resilience, and attractive valuations. They also emphasise the importance of lower crude oil prices, contained inflation, and policy initiatives that enhance India’s competitiveness as an investment destination.
Let’s take a look at the key factors that could drive a revival in FPI inflows into India;
Earnings revival will be the biggest trigger
Mohit Gulati, CIO and managing partner of ITI Growth Opportunities Fund, believes India does not need a dramatic shift in global capital flows to attract FPIs again. Instead, what foreign investors need is a credible earnings recovery story backed by macroeconomic stability.
According to Gulati, the most important catalyst for a return of foreign capital would be a meaningful improvement in corporate earnings across sectors such as banking, manufacturing, capital goods, and consumption. While liquidity can support markets in the short term, sustained FPI inflows are ultimately driven by earnings growth.
He also highlighted the importance of stable crude oil prices and a resilient rupee. A benign crude oil environment supports inflation control, fiscal management, and current account stability, while a stable currency reduces volatility concerns for overseas investors.
The third key factor, he said, is valuation. Following the recent correction and consolidation, Indian equities appear more reasonably valued relative to their historical averages. If stronger earnings growth is accompanied by macro stability, investors may once again consider India’s valuation premium justified.
Rupee stability, taxes, and oil prices are critical
Darekar identified three factors that could determine when foreign investors return. The first is currency stability. He noted that the rupee’s depreciation from 85 to 96.3 against the US dollar has significantly eroded dollar-denominated returns, making fresh allocations less attractive. A recovery toward the 88–90 range would be a positive signal.
The second factor is tax policy. According to Darekar, the increase in the long-term capital gains tax to 12.5%, the short-term capital gains tax to 20%, and the higher securities transaction tax () have reduced post-tax returns compared with competing Asian markets such as Taiwan, South Korea, and China.
The third factor is crude oil. A decline in Brent crude prices below $90 per barrel would ease pressure on India’s current account deficit and inflation outlook, potentially improving the investment case for foreign investors.
Valuations and Macro Stability can drive a comeback
Sunny Agrawal, Head of Fundamental Research at SBI Securities, said that stable macroeconomic conditions, currency stability, and attractive valuations remain the key ingredients for sustained FPI inflows into Indian equities.
Agrawal noted that the rupee’s weakness against the US dollar has made Indian markets relatively less appealing to overseas investors. Therefore, stability in the domestic currency will be crucial for attracting fresh foreign capital.
He added that strong GDP growth, controlled inflation, and fiscal discipline enhance confidence in corporate earnings visibility and support the broader investment narrative.
On valuations, Agrawal observed that the is currently trading at around 19 times one-year forward earnings, below its 10-year average valuation multiple of 20.2 times. Following the market correction in FY26, valuations have become more aligned with earnings expectations, improving India’s relative attractiveness.
Agrawal also highlighted the impact of the global AI investment theme, which has directed incremental FPI flows toward markets such as South Korea, given their greater exposure to semiconductor and AI supply chains. However, he believes that any moderation in AI-driven momentum trades or profit-booking in technology-heavy markets could lead to a rotation of foreign capital back into India.
Should we panic over FPI outflows?
Dr. V K Vijayakumar, Chief Investment Strategist, Geojit Investments, cautioned against viewing the recent decline in FPI flows as a cause for alarm, noting that foreign portfolio investment is inherently cyclical and influenced by changing global conditions.
According to Vijayakumar, FPI inflows have turned negative since September 2024 primarily because India’s earnings growth slowed from FY25 onward, while several competing markets reported stronger earnings performance. Rising global bond yields and the rupee’s depreciation have further reduced India’s attractiveness to FPIs.
He noted that these challenges are structural and unlikely to reverse immediately. However, he expects the rupee to stabilise once tensions in West Asia ease and crude oil prices decline.
On the FDI front, Vijayakumar suggested that India could learn from countries such as Vietnam and Malaysia, which successfully capitalised on the China Plus One strategy. He also advocated expanding the Production-Linked Incentive (PLI) scheme to additional sectors and liberalising FDI limits in selected industries to attract long-term foreign capital.
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