Foreign portfolio investors (FPIs) are continuing their selling spree in the Indian stock market, with a net withdrawal of ₹22,500 crore so far in January 2026. This extends a trend from 2025, during which FPIs withdrew a record ₹1.66 lakh crore from the Indian market.
Factors Influencing the Outflow
Several factors are contributing to this sustained outflow. One significant factor is the delay in finalizing a trade deal between India and the US, which has dampened investor sentiment. Compounding the issue are additional tariff threats from the US, including tariffs already imposed due to India's purchase of Russian oil. These trade tensions and geopolitical uncertainties are weighing on emerging market risk appetite.
Global factors also play a role. Rising US bond yields and a stronger dollar have made developed markets more attractive, leading to a reallocation of capital away from emerging markets like India.
Impact on the Indian Rupee
The persistent selling pressure from FPIs significantly contributed to the nearly 5% depreciation of the rupee against the dollar in 2025. The Indian rupee dropped to a record low of 90.78 against the US dollar recently.
Support from Domestic Investors
Despite the FPI sell-off, domestic institutional investors (DIIs) have provided support to the Indian stock market. In January 2026, DIIs purchased local stocks worth ₹34,076 crore. In 2025, massive DII investments of ₹7.44 lakh crore completely eclipsed the total FPI selling of ₹1,66,283 crore.
Market Experts' Views
Dr. VK Vijayakumar, Chief Investment Strategist at Geojit Investments Limited, noted that FPIs were net sellers on almost every day of trading in January. He also pointed out the underperformance of Indian markets compared to other major markets in early 2026.
Some experts believe that the tide could turn in 2026, citing improving domestic fundamentals that may attract net foreign inflows. They point to robust GDP growth and the prospects of a recovery in corporate earnings as positive factors. Easing friction in India–US trade ties, a favorable global interest rate environment and relative stability in the USD-INR exchange rate could make Indian equities more attractive again.
SEBI's Initiatives
The Securities and Exchange Board of India (SEBI) is taking steps to ease liquidity pressures for FPIs. A recent proposal aims to allow same-day fund netting for cash market transactions, which could reduce funding costs and streamline operations.
A Cautious Outlook
Despite some positive expectations, FPIs have started 2026 cautiously. Foreign investors have historically remained guarded in January, often waiting for clearer global and domestic signals before making fresh investments. FPI flows are likely to remain sensitive to global cues and macroeconomic developments.
