Foreign portfolio investors (FPIs), who have been aggressively selling Indian stocks since last year, may remain net sellers in India because of a challenging macroeconomic situation, such as elevated crude oil prices, inflation concerns, the prospects of weak corporate earnings, depreciation of the Indian rupee, and the lack of AI trade, according to experts.
NSDL data show that FPIs have sold Indian equities worth over ₹2,20,000 crore so far in 2026, after offloading ₹1,66,286 crore in equities last year.
While domestic institutional investors (DIIs) have relentlessly bought Indian equities during this period, cushioning the impact of massive foreign capital outflows, sustained FPI selling remains one of the key reasons behind the underperformance of the Indian stock market.
Why are FPIs selling Indian stocks?
A confluence of factors is behind the flight of foreign investors from the Indian stock market- the biggest among them is the weak return prospects.
“The Indian stock market has witnessed only two truly broad-based bull runs — the first between 2003 and 2008, and the second after the pandemic around 2020–21. Foreign Portfolio Investors (FPIs) have been steadily pulling money out of Indian equities amid concerns over weak return prospects,” Shankar Sharma, stock market veteran and founder of AI-tech firm GQuant Investech, told Mint.
Equity benchmark Nifty 50 is down 3% over the last year, while the S&P 500 has jumped over 27%.
Weak earnings, rupee volatility, and the lack of AI trade are also among the key factors behind their selloff.
FPIs may continue selling Indian stocks in the near future
Experts point out that near-term macroeconomic concerns are valid. Elevated inflation, high crude oil prices, and uncertainty around interest rates indicate FPIs may stay away from the Indian market.
“Elevated crude oil prices have clouded the outlook for economic growth, valuations remain expensive relative to earnings growth, and global investors are finding more attractive opportunities in overseas markets, particularly the AI-driven rally in the US and parts of Asia,” Sharma noted.
“FPI flows are opportunistic. If India re-invents itself as a tech-centric play, FIIs will buy because the enduring theme globally for 50+ years has been tech,” said Sharma.
VK Vijayakumar, Chief Investment Strategist, Geojit Investments, also highlighted that while macroeconomic concerns are high, a large portion of global capital is currently concentrated in the AI-driven rally in markets such as the US, South Korea, and Taiwan.
“Given these factors, it may be difficult for India to witness sustained FPI inflows immediately,” said Vijayakumar.
However, FPIs may reduce the intensity of their selling if the Indian rupee stabilises.
“Currency stability is an important factor for foreign investors. Recently, there have been some signs of stability in the rupee. If that continues, FPIs may reduce the intensity of their selling,” said Vijayakumar.
In fact, during a few recent trading sessions, FPIs briefly turned net buyers.
Vijayakumar said such intermittent buying can happen anytime, particularly when valuations become attractive, but at this stage, expecting sustained and strong FPI inflows may be too optimistic, as macro constraints continue to weigh on sentiment.
“India is currently facing elevated crude oil prices, inflation concerns, pressure on corporate earnings, weakening growth expectations in some sectors, and rupee depreciation risks. When high valuations are combined with moderating earnings growth, foreign investors tend to remain cautious,” said Vijayakumar.
Elevated crude oil prices have raised inflationary pressure and raised the prospects of monetary tightening by the US Federal Reserve in the near future.
The minutes of the US Fed’s April policy meeting indicated that policymakers may consider hiking rates in the near future if inflation remains above the Fed’s 2% target for a longer period.
According to Reuters, CME Group’s FedWatch tool indicates traders are pricing in a 60% chance of a Fed rate hike by December.
If the US hikes rates, it may worsen foreign capital outflows from India.
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Disclaimer: This story is for educational purposes only and does not constitute investment advice. The views and recommendations expressed are those of individual analysts or broking firms, not Mint. We advise investors to consult with certified experts before making any investment decisions, as market conditions can change rapidly and circumstances may vary.
