Foreign institutional investors have wiped out nearly nine years of buying in Indian stocks in the past two years. Due to this, total FII equity investment since October 2015 has almost returned to where it was before. Since October 2015, net equity inflows from foreign investors have been around $110 million. This means that sales of around $63.6 billion through October 2024 have completely wiped out the $63.5 billion in investment accumulated over the past nine years. In 2026, this situation has become more serious. Foreign investors have sold $32.8 billion in Indian equities so far this year, after withdrawing $18.9 billion in 2025. March 2026 saw the highest monthly withdrawals ($12.7 billion), followed by $6.5 billion in April and $5.2 billion in June.

Why are foreign investors selling?

This change in investment shows that the confidence of foreign investors has gone down a lot. There are many reasons behind it such as rise in US Treasury yields, dollar strength, high oil prices and concerns about repatriation from India. Amanish Aggarwal of PL Capital says in an ET report that India is unlikely to see major foreign investment in the near future. There are several reasons for this, including the US Treasury rate at 5.3%, India’s limited share in sectors like artificial intelligence and semiconductors, and the Nifty 100 returning just 1.2% annually in dollar terms over the past five years. He also said that foreign investment flows from 2021 have been “very volatile”. It may remain volatile in the future given rising crude oil prices, high interest rates, weak monsoons and the threat of ‘El Nino’.

Sales are not the same in every sector

These sales have not been uniform in all regions. According to Motilal Oswal Financial Services, sectors such as financial services, auto and oil and gas are expected to witness the highest overseas sales in 2026. Foreign investors sold $12.2 billion in financial stocks, $4.1 billion in automobiles and $3.9 billion in oil and gas stocks.

Also, it has increased its investments in metals, capital goods and services sector. This change has widened the gap between large-cap stocks and smaller companies. Foreign investors have mainly sold the large-cap sector, due to which large-cap stocks have underperformed compared to mid-cap and small-cap stocks.

Local investors have helped mitigate this pressure to some extent. According to Motilal Oswal, foreign investors sold $4.1 billion in September, while domestic institutions invested $8 billion. Strong domestic liquidity, stable macroeconomic conditions, earnings growth and cheap valuations have improved the risk-reward balance, though a quick recovery in foreign investment is unlikely in the near future, the brokerage firm said.

FIIs want portfolio diversification

HSBC says Indian stocks are now becoming more attractive, as global investors now want to diversify their portfolios and not be limited to artificial intelligence (AI) related investments. According to the bank, the Nifty 50 is trading at around 16 times its 12-month forward earnings (expected future earnings) – a feat seen only twice in the last decade.

Financial stocks are trading at 1.7 times their forward book value, about 30% below their five-year average (2.4 times). Similarly, IT (information technology) stocks are valued at around 18 times their forward earnings, lower than their five-year average (around 23 times).

HSBC has warned that rising bond yields and energy prices could put pressure on the rupee and limit foreign investor enthusiasm. The bank believes that falling bond yields and oil prices could prove to be a major positive factor for Indian stocks.

Investment in IPO

Sales by foreign investors should also be viewed in the context of primary market (IPO etc.) activities. According to Motilal Oswal, in the last two years foreign investors have sold about $63 billion in the secondary market, while they have invested $21 billion in the primary market. However, the sharp decline in foreign investment in the secondary market does not mean that foreign investors have completely turned their backs on India. This means that they have now become more selective. They are reducing their investment in listed shares, while investing money in new issues and selected companies.