FII selling continues to be one of the biggest concerns for the markets. The reasons could be different, but the outflows continue. What’s even more of a worry is that the last three days have seen a sudden surge in the selling. In just 3 days, the FII outflows totalled Rs 29,612.85 crore. What’s driving this constant exodus of capital from Indian markets?
From India offering limited AI play, the concerns for the tech sector, and surging crude rates to the dollar’s strength, there are multiple triggers abetting the outflows. The latest red flag and a major source of worry globally is the US 10-year yield. It’s been surging to multi-decade highs for a month now. The US 10-year yield has reached 5.34% levels, and a close above 5.44% is seen as a make-or-break level.
Many believe the monsoon deficit and looming fears about a country-wide drought-like situation are further fanning the flames.
2026 FII outflows exceed Rs 4 lk cr: Monthly breakdown
So far in 2026, FIIs have net sold equities worth approximately Rs 4.03 lakh crore. Interestingly, September accounted for more than 10% of the year’s net outflow. They have been net sellers every single month, with March seeing net outflows of over Rs 1.2 lakh crore.
FII outflows in 2026 so far
| Month | Net FII Purchase/Sale (Rs cr) |
| January 2026 | -41,435.22 |
| February 2026 | -6,640.78 |
| March 2026 | -1,22,540.41 |
| April 2026 | -70,135.46 |
| May 2026 | -55,963.33 |
| June 2026 | -49,028.63 |
| July 2026 | -5,778.99 |
| August 2026 | -7,531.84 |
| September 2026 | -44,012.82 |
| Total (so far in 2026) | -4,03,067.48 |
3 main reasons why FII selling has accelerated
The pace of outflows slowed slightly in July and August but again picked pace in September. There are multiple factors that triggered this.
#1 Spike in US Treasuries: 10-year yield touches 24-year high
One of the biggest concerns in the market right now is the sharp spike in the US bond yield. It has now risen to levels last seen in 2002, a whopping 24-year high. As a result, we have seen a risk-off sentiment globally, and several other benchmark yields have also shot up.
Dr V K Vijayakumar, Chief Investment Strategist, Geojit Investments, explained that “the market has been weak and steadily trending down for more than two months now. The spurt in FII selling happened during the last four trading days. The most important reason is the spike in US bond yields with the 10-year yield crossing the 5.2% mark.”
Market veteran Ajay Bagga believes the step up in the FII selling is primarily on account of this. “The main reason is the rise in global bond yields, especially the US Treasuries. With 5% plus risk-free returns available in US dollars, we have seen a flight of capital from EMs to the US. The rising yields have led to a stronger US dollar, with the DXY crossing 102 levels.”
The Dollar Index is now averaging between 101-102 levels, last seen in June, and decidedly the highest it has risen in 2026 so far. It last surged to these levels in March-April 2025.
Shrikant Chouhan, Head Equity Research at Kotak Securities, added that the “US bond yield jumped to 5.30%, a 20-year high. Globally, the rally in AI companies after declaring decent quarterly numbers will also impact sentiment. The Anthropic IPO is expected this month, and that may also be the reason for outflows from India.”
FII selling picks pace in last 3 days
| Date | Net FII Sell (Rs crore) |
| 01 Oct | -9,484.22 |
| 30 Sep | -10,148.41 |
| 29 Sep | -9,980.22 |
| 28 Sep | -5,353.22 |
| 25 Sep | -3,693.93 |
| 24 Sep | -5,027.36 |
#2 Persistent $100 crude weighs on inflation & rupee
The other big worry for a oil-importing nation like India has been the constant uptick in crude rates since March. As the US-Iran imbroglio continues, crude has seen a nearly 65% jump in prices so far since January. What’s even more worrying is it’s been trading around the $100 per barrel mark for more than 6 months now.
Market veteran Ajay Bagga considers “rising geopolitical risk due to the threat of an escalation in the US-Iran war is the second reason, with risk-off moves happening across assets.”
Kotak’s Shrikant Chouhan added that the “major concern is the crude prices sustaining above the level of $100 for a longer time. It is causing an inflationary trend globally. The US Fed has increased rates and guided for the further hike in December. The RBI is likely to consider increasing the rate in the coming policy.”
Vijayakumar too reiterated that “Brent crude staying above $100 is another worry. This has the potential to impact India’s GDP growth and corporate earnings in FY27.”
#3 Monsoon deficit at 13%: Emerging drought risks stoking inflation
What has exacerbated the inflation concerns is the country’s evolving domestic situation. Though the growth momentum has continued, the rainfall deficit is snowballing into a far larger problem compared to what was anticipated earlier.
Maharashtra has already announced drought, and several other states are also experiencing similar conditions. This has stoked inflation fears even more.
According to Bagga, “With oil prices rising, the outlook for Indian inflation and trade deficit has deteriorated, and the rupee fell further even as Indian bond yields went up. This was the third catalyst for the spiralling higher FII outflows from Indian markets, with PSU banks seeing a lot of selling as well.”
Vijayakumar also corroborated the view, “A third worry, which is adding to the negative sentiments and perhaps contributing to FII selling is the 13% shortfall in the monsoon this year and the emergence of drought-like conditions in many regions.”
RBI policy & macro triggers to watch
October has started on an equally sombre note with the first trading session accounting for over Rs 9,000 crore outflows. All eyes are on the RBI policy next week and how the drought situation pans out going forward. Any signs of resolution of the US-Iran situation and easing of yield would be seen as encouraging developments.