Foreign Institutional Investors (FIIs) have kicked off the new year 2026 by maintaining their selling pressure on Indian equities, continuing a dominant trend from a tumultuous 2025. Data reveals that in the first two trading sessions of January, foreign investors were net sellers, offloading shares worth a substantial Rs 7,608 crore.
A Historically Tough Year for Foreign Investment
This cautious start merely extends a brutal phase of selling that characterized the previous calendar year. Throughout December 2025, FIIs remained net sellers, divesting Indian equities worth Rs 22,611 crore. This pushed the total foreign capital outflow for the entire year of 2025 to a staggering Rs 1,66,286 crore. Market participants have labeled the scale of these sales as unprecedented.
V K Vijayakumar, Chief Investment Strategist at Geojit Investments, described 2025 as the worst phase of FII selling since overseas investors began participating in Indian markets. He provided a detailed breakdown, noting that during calendar year 2025, FIIs sold equities worth a massive Rs 2.40 lakh crore in the secondary market. While investments of Rs 73,909 crore through primary market offerings like IPOs softened the net outflow, the selling pressure was relentless. December alone witnessed secondary market selling of Rs 30,332 crore.
What Drove the Massive FII Exit?
Explaining the reasons behind this sustained exit, Vijayakumar pointed to two primary factors. First, he cited relatively high valuations in the Indian market compared to other global opportunities. Second, he highlighted a global shift in capital towards artificial intelligence-linked trades, which diverted funds away from traditional emerging markets like India.
This persistent selling also had a pronounced impact on the Indian currency. The rupee emerged as the worst-performing major currency in 2025, depreciating by nearly 5% against the US dollar over the year. A quarterly analysis of 2025 flows reveals highly uneven FII behavior. The year began disastrously with an outflow of Rs 1,16,574 crore in the January-March quarter. A brief respite followed in April-June, which saw inflows of Rs 38,673 crore, before the selling resumed.
Optimism for a Turnaround in 2026
Despite the weak opening to 2026, several market experts believe the outlook for foreign flows could improve as the year progresses. Vijayakumar expects a strategic shift from FIIs as India's economic fundamentals strengthen. "Significant improvement in India’s fundamentals are likely to attract net FII inflows in 2026. Robust GDP growth and prospects of improvement in corporate earnings in 2026 augur well for positive FII flows," he stated.
Nilesh Jain, Head Vice President – Equity Research at Centrum Broking, also struck an optimistic note. He expects 2026 to be better than the previous year and has set a Nifty target of 29,731 for December 2026, implying a potential upside of approximately 13%. He bases this view on improving macro indicators, stronger GDP growth, easing inflation, and an anticipated end to the cycle of corporate earnings downgrades.
Jain added important context, noting that India significantly underperformed global emerging markets in 2025, delivering its weakest relative performance in three decades. This was due to a combination of rupee depreciation, the persistent FII selling, and high US tariffs of 50%, with no trade deal reached by the end of the year to alleviate the pressure.
