Foreign Portfolio Investors (FPIs) have extended their selling spree into the new year, remaining net sellers in the Indian stock market during five of the first seven sessions of January 2026. This persistent outflow indicates that the record selloff witnessed in 2025 is far from over, casting a shadow over market sentiment.
The Numbers Behind the Exodus
After a historic net withdrawal of ₹166,286 crore in 2025, FPIs have offloaded an additional ₹11,789 crore worth of Indian equities this month, as per data from the National Securities Depository Limited (NSDL). This sustained selling pressure has dragged the benchmark Nifty 50 index down by 1.71% so far in January.
What's Driving Foreign Investors Away?
A confluence of global headwinds is keeping FPIs at bay. The threats have intensified in the initial weeks of 2026, creating a perfect storm of uncertainty for foreign capital.
First, renewed trade tensions with the United States are a major concern. US President Donald Trump recently threatened fresh tariffs on India if it does not suspend purchases of Russian oil. A bipartisan US bill, which has Trump's backing, proposes staggering tariffs of up to 500% on nations buying Russian oil and awaits congressional approval. The US has already imposed a base 25% tariff on India, plus an additional 25% due to its Russian oil imports, which Washington views as funding Russia's war in Ukraine. This development not only dents investor sentiment but also creates fresh obstacles for the long-pending India-US trade deal, despite six rounds of negotiations.
Second, heightened geopolitical risk is pushing investors towards safer assets. The recent US military action in Venezuela has spiked global risk aversion, making riskier emerging market equities less attractive compared to safe-haven assets like US Treasuries.
Third, currency volatility is eroding returns. Santosh Meena, Head of Research at Swastika Investmart, identifies the resurgent US Dollar and a weak Indian Rupee as primary drivers. The rupee depreciated nearly 5% in 2025, and its continued weakness is diminishing dollar-denominated returns for foreign investors, prompting them to exit to hedge their risks.
"The recent US military action in Venezuela has spiked global risk aversion, driving capital toward 'safe-haven' US Treasuries rather than riskier emerging market equities. Furthermore, the looming threat of higher US tariffs on Indian exports—stemming from ongoing US-India trade negotiations—is keeping investors on the sidelines until policy clarity emerges," Meena explained.
Adding to this, Nikunj Saraf, CEO of Choice Wealth, notes that after the sharp portfolio adjustments of 2025, many FPIs are still in capital-preservation mode, awaiting clearer signals on global policy and growth direction.
Potential Catalysts for a FPI Return
Despite the global gloom, domestic fundamentals offer a silver lining. Analysts believe several factors could lure FPIs back to Indian shores.
A strong set of corporate earnings could be the first trigger. For the third quarter of FY26 (Q3FY26), analysts at Motilal Oswal Securities Ltd. (MOSL) project earnings to grow by 16% year-on-year, which would be the highest growth in eight quarters.
Valuations have also become more appealing. A recent CLSA report highlighted that India's relative valuations have turned more lucrative. Combined with steady earnings growth, this could reignite foreign investor interest in 2026.
Currency stability is another critical factor. Santosh Meena points out that a structural reversal in FPI flows will likely depend on the rupee finding a floor. Any signal from the Reserve Bank of India (RBI) or global markets that the rupee's depreciation has halted would reduce hedging costs for foreign investors.
Macro clarity will be pivotal. The US Federal Reserve's interest rate path and the outcome of India's Union Budget 2026 are key events to watch. Ross Maxwell, Global Strategy Operations Lead at VT Markets, stated that clear indications from the Fed towards sustained rate cuts would ease yield differentials, weaken the US dollar, and make emerging markets more attractive.
"Ongoing tensions between the US and Venezuela can create short-term volatility in crude prices. If prices can stabilise, this would support India’s current account dynamics and help the rupee, reducing currency risk for foreign investors," Maxwell added.
Finally, a positive breakthrough in the India-US trade talks, particularly regarding tariff exemptions, would immediately de-risk export-oriented sectors and likely trigger swift FPI inflows back into these market heavyweights.
Disclaimer: This story is for educational purposes only. The views and recommendations expressed are those of individual analysts or broking firms. Investors are advised to consult certified experts before making any investment decisions.
