Foreign Portfolio Investors (FPIs) have kicked off the new year 2026 by continuing their selling spree from the previous year, pulling out a significant ₹7,608 crore (approximately $846 million) from Indian equity markets in just the first two trading sessions of January. This data, sourced from the National Securities Depository Limited (NSDL), indicates a cautious stance from global funds at the year's onset, suggesting near-term market vigilance.
Following a Record-Breaking 2025 Exodus
This initial withdrawal in 2026 comes on the heels of a massive exodus in 2025, which saw a historic outflow of ₹1.66 lakh crore ($18.9 billion) from Indian shares. The driving forces behind last year's sell-off were multifaceted, including worries over sharp currency movements, escalating global trade tensions, the looming threat of potential US tariffs, and perceived high market valuations that made investors nervous.
Impact on the Indian Rupee
The sustained selling pressure from FPIs has had a direct and tangible impact on the Indian currency. This persistent capital flight was a key contributor to the rupee depreciating by nearly 5% against the US dollar throughout 2025. The mechanism is straightforward: when foreign investors exit, they sell their rupee-denominated assets and convert the proceeds back into US dollars. This action increases the demand for dollars while simultaneously reducing demand for the rupee, putting downward pressure on its value.
Expert Outlook: A Potential Turnaround in 2026?
Despite the rocky start, market analysts are optimistic that the trend could reverse as 2026 progresses. VK Vijayakumar, Chief Investment Strategist at Geojit Financial Services, told PTI that the new year is anticipated to bring a shift in FPI strategy. He pointed to improving domestic fundamentals as a potential magnet for net foreign inflows.
"A robust GDP growth and the prospects of a recovery in corporate earnings bode well for positive FPI flows in the coming months," Vijayakumar added.
Echoing this sentiment, Vaqarjaved Khan, Senior Fundamental Analyst at Angel One, highlighted several supportive factors. He stated that a normalization in India-US trade relations, a calmer global interest rate environment, and greater stability in the USD-INR exchange rate could create a favorable backdrop for foreign capital.
Khan also noted a critical change: "Equity valuations have become relatively comforting compared to last year, which could further support a revival in inflows."
Is This January Selling Unusual?
Experts clarify that despite the hefty numbers, the cautious January behavior is not out of the ordinary for FPIs. Historically, foreign investors have often started the year on a careful note, with data showing they pulled out funds in eight out of the past ten years during January.
Looking ahead, FPI flows are expected to stay highly sensitive to global cues and macroeconomic developments worldwide. However, the intense concerns over stretched valuations that dominated 2025 have somewhat receded, offering a glimmer of optimism for the months ahead, as Khan concluded in his remarks to PTI.
