Rs 2.2 lakh crore gone: FPI outflows have already surpassed 2025 — What could trigger a reversal?

But as the saying goes, we cannot miss the forest for the trees. Foreign portfolio investors have pulled out over Rs 2.1 lakh crore from Indian equities in barely four months, a scale of selling described as the worst since foreign portfolio investing in India was permitted in 1993. And with May barely half done, the exodus shows no signs of stopping.

To put it in context: this is not a bad year for FPI flows. This is historically bad. The total outflows in 2026 have already surpassed the Rs 1.66 lakh crore pulled out during the entirety of 2025, according to data with NSDL.

The month-by-month anatomy of a sell-off

The story of the 2026 outflows is not a straight line. It has a dramatic shape, and each chapter has a distinct cause.

January opened with FPIs withdrawing Rs 35,962 crore, followed by a brief reversal in February when foreign investors turned net buyers, pumping in Rs 22,615 crore, which was the highest monthly inflow in 17 months. Macro conditions had improved, the India-US trade agreement was being finalised, and the D-Street argued the worst was behind us.

Alas, it was not.

March delivered the largest monthly FPI outflow ever recorded in India’s history, which was Rs 1.17 lakh crore, surpassing the previous record of Rs 94,017 crore set in October 2024. The primary catalyst was the sharp escalation of geopolitical tensions in West Asia. This pushed Brent crude above $115 per barrel, which is the single biggest factor for India as the country imports over 85% of crude oil.

The month-by-month tally from NSDL data:

The five forces behind the exit

#1 The West Asia shock: The conflict in West Asia, rising crude oil prices, and global tariff anxieties were repeatedly cited as the key drivers. For India specifically, $115 Brent is not a minor headwind. It widens the current account deficit, weakens the rupee, raises corporate input costs, and forces the government into subsidy obligations that strain fiscal arithmetic.

“FII are continuously selling in the Indian equity markets. Selling in March and April 2026 was exceptional owing to the Middle East (West Asia) tensions,” confirmed Vipin Kumar, Assistant Vice President of Technical Research at Globe Capital.

#2 The dollar trap: The rupee was at 90 to the US dollar at the beginning of 2026. By May 15, it surged past the mark of 96 mark to the greenback. Experts said that a weakening rupee creates a vicious cycle for FPIs. Their rupee-denominated returns erode when converted back to dollars, making the same equity market return look smaller in dollar terms. 

#3 Valuation and earnings anxiety: The Nifty traded at around 22-23 times price-to-earnings (as per the data on Screener) at the start of the sell-off, and concerns about earnings visibility made India’s valuation look expensive relative to its peers. Relative to North Asian markets, India looks less attractive on risk-reward because it trades at significantly higher valuations.

Indian Equity markets have traded at a significant premium relative to their historical valuations and other emerging markets. This cocktail of higher valuations and muted corporate earnings created a valuation gap, which forced FPIs to book profits in India and shift capital to cheaper markets, added Kumar. 

Re-affirming the above point, V K Vijayakumar, Chief Investment Strategist at Geojit Investments, said that modest earnings growth in India and better earnings prospects in other markets like South Korea and Taiwan led to FPI outflow.

#4 Rising US yields: US 10-year yields have been hovering between 4.37% and 4.45%. When US Treasuries offer nearly 4.5% with zero credit risk, the risk-reward of emerging market equities at elevated valuations becomes difficult to justify for global allocators. 

Moreover, the energy crisis might impact India’s GDP growth and earnings, added Vijayakumar.

Conclusion

However, some green shoots are visible as FPIs have been net buyers. Rupee stabilisation, crude oil declining toward $90–95 per barrel, meaningful valuation de-rating on Indian equities, and greater clarity on West Asia tensions could be the primary conditions for FPI equity flows to change trend.