Introduction
The first half of 2026 has been a study in contrast when it comes to FPI behaviour.
Here’s the revised version:
On one hand, foreign investors have been steadily pouring money into Indian debt, with June alone seeing inflows of around ₹55,518 crore. On the other, equities have faced persistent selling pressure, with outflows crossing ₹2.7 lakh crore over the first six months of 2026.
This divergence isn’t random. It reflects a clear shift in global positioning.
Debt has benefited from a broader move toward safety amid uncertainty, while Indian equities have seen caution creep in. Valuations remain elevated; global yields, especially in the US, are more attractive, and geopolitical concerns, particularly in West Asia earlier this year, have added to the risk-off sentiment. At the same time, capital has shown a preference for developed markets over emerging ones.
Put together, it’s a classic case of capital seeking stability over growth, at least for now.
Monthly FPI Flows in 2026 (₹ Crore): The Numbers Tell the Story
| Month | Equities (₹ Crore) | Key Insight |
|---|---|---|
| January | -35,962 | Risk-off start |
| February | +22,615 | Brief equity rebound |
| March | -1,17,775 | Record equity sell-off due to the West Asia conflict |
| April | -60,847 | Continued selling pressure |
| May | -32,963 | Outflows moderated as geopolitical tensions eased |
| June | -49,340 | Global risk aversion sustained FPI equity outflows |
Equity outflows have already crossed the entire 2025 total of around ₹1.66 lakh crore. (Source: TOI)
That said, early July has started on a slightly positive note, with modest inflows of about ₹708 crore as of July 3, offering a small but encouraging sign of stability.
Month-by-Month: What drove the flow?
- January: Global uncertainty remained high, and investors stayed cautious as markets turned volatile.
- February: Sentiment improved slightly after the Union Budget, as it raised hopes of policy stability and possible monetary easing. This led to a short-lived rebound in equities.
- March: Severe global shocks, especially the US–Iran conflict, unsettled markets. Inflation expectations rose, the rupee weakened, and India’s current account deficit widened, given its heavy dependence on crude oil imports.
As uncertainty increased, capital moved out of equities and into safer assets like US Treasuries, bonds, and dollar-denominated investments in developed markets. - April: Outflows continued as geopolitical tensions rose. Weak corporate earnings, particularly in IT consulting firms, added to the pressure, along with higher oil prices.
- May: Panic selling eased, but outflows continued. Other emerging markets started to look more attractive on valuations. At the same time, India’s premium pricing and slower earnings growth in some sectors kept investor sentiment cautious.
- June: Market sentiment started to improve gradually. The rupee stabilised, oil prices softened, and FPIs began spotting opportunities in select sectors with more reasonable valuations. At the same time, Indian bonds saw strong inflows this month.
- July (So far): Modest equity inflows signal a possible turning point as global pressures begin to ease.
Overall, the first half of the year was largely influenced by external factors such as geopolitical tensions, a stronger US dollar, higher crude prices, and global trade concerns. These challenges led institutions to reduce their exposure to emerging markets, including India. As these pressures started to ease, capital began returning, but in a more selective.
Why are FPIs Reducing Equity Exposure?
1. Global Investors are preferring developed markets:
Higher interest rates and relatively attractive yields in economies like the US have made these markets hard to ignore. In comparison, the incremental return on taking emerging market risk has started to look less compelling in the near term.
So, the shift is not purely about growth anymore. It is about the quality of that growth and the balance between risk and return. At the margin, developed markets are offering a more predictable and comfortable trade-off, which is where capital is finding its way.
2. High Valuations in Indian Equities:
Indian markets have seen strong returns over the past few years.
That said, elevated valuations are beginning to shape investors’ behaviour. There is a noticeable shift towards greater selectivity, particularly in areas where earnings growth has not kept pace with the rise in prices.
3. Rising US Bond Yields:
Higher US treasury yields are quietly reshaping global capital flows.
When investors can earn relatively attractive returns from safer assets, the need to take on additional risk naturally comes down. In that context, allocations to emerging markets tend to become more measured, not necessarily due to a change in long-term conviction, but because the relative trade-offs have shifted.
4. Geopolitical uncertainty:
Amid evolving geopolitical developments and uncertainty in global energy markets, investors remained cautious through the first half of the year, choosing to stay measured in their approach.
The Interesting Part: FPIs are Still Buying Indian Debt
While equities continued to see sustained selling pressure, Indian debt markets quietly attracted strong foreign interest.
In June alone:
- FPIs infused ₹21,652 crore through the Fully Accessible Route.
- Additional investment of ₹3,246 crore came through the Voluntary Retention Route
Taken together, the shift is quite telling. Capital is not leaving India; it is simply repositioning.
There is a visible tilt away from growth-oriented assets toward instruments that offer greater stability and predictability.
Indian government bonds, in particular, are increasingly finding favour:
- Inclusion in global bond indices
- Improved accessibility for foreign investors
- Stable macroeconomic conditions
- Attractive yields compared with developed markets
It is less about risk-off, and more about selective allocations.
Sector-wise Impact: Where did FPIs Sell and Where did They Stay Invested?
FPI selling was far from uniform. The pressure was clearly concentrated in a few pockets, while some sectors continued to hold investor interest.
Sectors that faced pressure:
- Information Technology: IT stocks remained under strain. Concerns around slower global tech spending, currency volatility, and an uncertain demand recovery cycle kept investors cautious.
- Financial Services: Banking and Financial also saw consistent outflows. Elevated valuations and early signs of moderation in credit growth made investors more selective in this space.
- Consumer-facing sectors: Premium valuations in certain consumer companies led investors to book profits.
Sectors that attracted selective interest
- Capital Goods & Infrastructure: Investors continued to watch India’s infrastructure expansion story, supported by government spending and private sector investment.
- Manufacturing-linked companies: The long-term narrative around domestic manufacturing and supply chain diversification continues to play out, even if flows are not aggressive.
- Energy & Utilities: Energy and Utilities offered relative stability. Predictable cash flows and their strategic importance in the economy helped these sectors remain more resilient compared to the rest of the market.
Overall, the shift does not point to a broad exit, but rather a more calibrated allocation, with investors moving away from expensive growth pockets toward areas offering visibility and stability.
What Does This Mean for Indian Markets Ahead?
FPI selling is not a verdict on India’s fundamentals.
It reflects a more calibrated, selective approach to capital allocation, not a shift in conviction.
Foreign investors today seem to be asking more balanced questions:
- Are valuations supported by earnings growth?
- Which sectors can deliver sustainable returns?
- And where can capital earn the best risk-adjusted outcomes?
The first half of 2026 does not point to an exit of foreign capital. It points to a shift in how that capital is being allocated.
From equities to debt.
From broad market exposure to selective positioning.
From chasing high valuations to focusing on quality businesses.
The next phase of foreign investment in India may not be driven by liquidity alone. It will depend on a stronger combination of factors:
- Greater visibility on corporate profitability
- Earnings growth catching up with valuations
- Stability in currency and interest rate expectations
- Opportunities in sectors benefiting from India’s structural growth story
As markets absorb the impact of recent outflows, the question is not whether FPIs will return to India.
The question is: what businesses, sectors, and themes will earn their confidence when they return?
