Indian traders in a Mumbai office discuss market trends as the Gateway of India stands visible outside.
Foreign investor interest in Indian equities has waned, according to Zerodha cofounder Nithin Kamath, echoing concerns about India’s high valuation premium. A recent DSP Mutual Fund report highlighted that foreign investors have seen no returns in Indian stocks for the past four and a half years.
In April, foreign institutional investors (FIIs) offloaded ₹48,210 Cr ($5.77B USD) worth of domestic equities, bringing year-to-date sales to ₹1,79,335 Cr ($21.5B USD). This sell-off occurs as India Inc. concludes Q4 FY26, amidst global liquidity tightening, rising US yields, and geopolitical tensions.
Between September 2024 and November 2025, foreign portfolio investors (FPIs) withdrew nearly $28 billion from Indian equities, resulting in a 14-year low in foreign ownership. Tanvi Kanchan from Anand Rathi Share & Stock Brokers Limited noted India’s slip to the second-largest underweight position in emerging market portfolios.
Elevated US bond yields and geopolitical tensions in West Asia have contributed to the outflow. Tarun Singh of Highbrow Securities pointed out that FIIs now view India as expensive compared to markets like Japan, Taiwan, and Korea.
In 2025, FPIs sold approximately $18.9 billion worth of Indian equities due to repeated earnings downgrades and recovery concerns. India’s weighting in the MSCI Emerging Markets Index has decreased, now ranking behind China, Taiwan, and South Korea.
The Nifty 50 now trades at around 20 times earnings, still above the emerging market average but lower than previous extremes. India’s premium over emerging markets has compressed to roughly 27%.
Currency stability is crucial for recovery. According to Kanchan, currency erosion can convert positive equity returns into negative dollar returns. Stabilization in the INR/USD pairing, potentially through progress on an India-US trade agreement, could improve investment prospects.
A strong Q4 FY26 performance, particularly from banking, capital goods, and domestic consumption sectors, could reset growth expectations. A decline in crude prices below $85 per barrel would alleviate concerns around inflation, the current account deficit, and currency stability.
Policy adjustments, such as simplifying long and short-term capital gain (LTCG/STCG) taxes, could also send a positive signal to investors, according to Singh.
March 2026 saw FPIs withdraw over ₹52,000 Cr in the first half of the month, following February’s inflows of ₹22,615 Cr. Singh suggests this indicates stabilization rather than recovery, with a significant comeback unlikely in the near term due to high oil prices and geopolitical tensions.
FPIs are increasingly selective, favoring stocks with earnings visibility and domestic demand strength, such as telecom, capital goods, infrastructure, BFSI, and energy-linked sectors. Sectors like IT and consumption are being avoided due to weaker visibility.
Honasa Consumer projects late-20% growth in Q4 FY26, while Nexus Venture Partners sold ₹530 Cr stake in Delhivery. Fino Payments Bank appointed ex-RBI official Abhilash Ankathil as CCO, and Nykaa anticipates late-20% revenue growth in Q4 FY26.
Despite challenges, corporate balance sheets are stronger, leverage is lower, and capital allocation discipline has improved. The RBI’s accommodative stance, with rates easing towards 6%, is expected to support credit growth and consumption in the latter half of FY27.
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