Foreign portfolio investors (FPIs) withdrew over Rs 22,530 crore from Indian equities between January 1 and 16, extending a selling streak that began last year. Data from NSDL showed the net outflow in the first fortnight, even as domestic institutions continued to provide support.
The sale follows a massive exodus in 2025, when FPIs pulled out around Rs 1.66 lakh crore. That outflow was driven by volatile currency moves, global trade tensions and concerns about potential US tariffs and stretched market valuations. Analysts say the prolonged foreign selling was a key factor behind the roughly 5% depreciation of the rupee during 2025.
Dollar strength, US yields drive reallocations
Market experts attributed the latest withdrawals to a mix of global and domestic forces. “Rising US bond yields and a stronger dollar have improved risk-adjusted returns in developed markets, prompting capital reallocation away from emerging markets,” Sachin Jasuja, Head of Equities and Founding Partner at Centricity WealthTech, told PTI.
Like Jasuja, Himanshu Srivastava, Principal-Manager Research at Morningstar Investment Research India, said elevated US bond yields and dollar strength have made US assets relatively more attractive. He added that geopolitical and trade-related uncertainties continue to weigh on risk appetite across emerging markets.
Domestic support over the same period
On the domestic front, relatively rich valuations in certain segments of the market, coupled with mixed signals from the ongoing earnings season, have triggered profit-taking and portfolio rebalancing by foreign investors.
Support from domestic institutional investors remained strong, with net purchases of Indian equities worth Rs 34,076 crore over the same period.
Rupee weakness erodes dollar returns
Adding to the pressure, the rupee’s depreciation to around 90.44 per dollar recently has eroded dollar-denominated returns despite largely stable index levels.
Chief Investment Strategist at Geojit Investments, VK Vijayakumar, said the selling trend may persist until clear positive triggers emerge to support a sustained market rally. The PTI report further quoted him saying that the AI-led trade that dominated markets in 2025 has continued into early 2026, though a reversal in this trend could emerge later in the year.