Foreign portfolio investors (FPIs) have kicked off 2026 on a cautious note, continuing their selling spree from the previous year by pulling significant capital out of Indian equity markets in the first two trading sessions.
A Rocky Start to the New Year
Data from the National Securities Depository Ltd (NSDL) reveals that between January 1 and January 2, 2026, FPIs were net sellers to the tune of Rs 7,608 crore, which is approximately $846 million. This early-year withdrawal signals that the apprehensions which dominated 2025 have spilled over into the new calendar year.
This fresh pullout comes on the heels of a massive exit in 2025, which saw foreign investors offload Indian equities worth a staggering Rs 1.66 lakh crore ($18.9 billion). That record outflow was triggered by a confluence of factors including:
- Sharp volatility in global currency markets.
- Ongoing international trade tensions.
- Anxieties over potential tariff actions by the United States.
- Widespread concern that Indian market valuations had become excessively high.
Impact and Lingering Caution
The sustained selling pressure from overseas investors also took a toll on the Indian rupee, contributing to the currency's decline of almost 5% against the US dollar over the course of 2025. Market watchers point out that such early-year caution is not an anomaly. In fact, foreign investors have withdrawn money from Indian equities in the month of January in eight out of the past ten years, indicating a pattern of waiting for clearer domestic and global signals before committing fresh funds.
For now, the dominant theme remains one of vigilance. Analysts expect FPI flows to stay intricately linked to worldwide developments and broader macroeconomic trends. While some valuation concerns have abated, foreign investors are predicted to remain highly selective, closely monitoring economic indicators and external cues before turning decisively positive.
Silver Linings and Potential Triggers for a Reversal
Despite the cautious start, market participants have not ruled out a shift in sentiment as 2026 progresses. VK Vijayakumar, Chief Investment Strategist at Geojit Investments, suggested to PTI that foreign investors may recalibrate their stance as domestic conditions show improvement. He highlighted that strong economic growth and emerging signs of a recovery in corporate earnings could begin to lure overseas capital back into Indian markets.
Echoing a cautiously optimistic view, Vaqarjaved Khan, Senior Fundamental Analyst at Angel One, identified several potential triggers that could support a return of foreign inflows. He noted that:
- An easing of friction in India-US trade relations.
- A favourable global interest rate environment.
- Relative stability in the USD-INR exchange rate.
According to Khan, these factors, combined with valuations that are now more reassuring compared to last year, could make Indian equities attractive again for FPIs, reducing one of the key deterrents that fueled the previous year's sell-off.
