FIIs selling in India continues to remain relentless

Strong reforms and earnings signals fail to halt FII selling amid global uncertainty. As we have stepped into 2026, developments on the FII front have been frustratingly negative. Talking to Bizz Buzz, N ArunaGiri, CEO of TrustLine Holdings says, “The early hopes of a reversal in FII outflows have clearly been dashed. If anything, the pace of selling has accelerated. Over the last 15 months, FIIs have sold close to $45 billion, and there is still no visible turn in sight.”

There lie renewed reforms momentum with more expected from the upcoming Budget. They include early signs of stability returning to the rupee, early signs of earnings recovery and expectation of double-digit growth in FY27. Besides, one sees cooling off of AI trade as reflected by underperformance of Mag7 against S&P 500 for the first time after many months.

The recent acceleration appears to be driven by renewed tariff-related rhetoric, heightened geopolitical tensions, and risk-off soundbites. At the core, in our view, FIIs are currently caught in the momentum-begets-momentum trade” in other markets. As long as this is working, they are unlikely to turn their attention to India.

Either this “momentum-begets-momentum cycle” in other markets breaks at some point or the pace of earnings upgrades meaningfully accelerates for India - Until one of these plays out, investors must be prepared for drag in the broader markets with persistent FII selling. Of course, any positive news on the tariff front and easing geo political tensions will certainly help at the margin.”

Ross Maxwell, Global Strategy Operations Lead, VT Markets says, “Foreign portfolio investors (FPIs) remain cautious on Indian markets at the start of 2026, extending the risk-off stance seen through much of 2025. This reflects global and macro headwinds rather than any weakening in domestic fundamentals.”

Elevated US interest rates, uncertainty over the timing of Federal Reserve rate cuts, sticky inflation in advanced economies, and a strong US dollar have tightened global liquidity and reduced risk appetite for emerging markets.

Geopolitical tensions, fragile global growth, and commodity price volatility have further kept FPIs defensive, resulting in continued foreign outflows into early January despite India’s resilient GDP growth, improving earnings outlook, and steady domestic institutional investor support.

A sustained reversal in flows would likely require clearer signals of Fed easing, a softer dollar, and reduced global volatility. Domestically, fiscal discipline, policy predictability, and reform momentum remain key. While Indian equities trade at a premium to other emerging markets, superior earnings growth, a strong consumption base, infrastructure and manufacturing capex, and rapid digitalisation continue to support India’s long-term investment appeal.s