Foreign Investors Start 2026 with Caution: What’s Next for Indian Equities?

Foreign Portfolio Investors Withdraw from Indian Markets

New Delhi: As 2026 unfolds, foreign portfolio investors (FPIs) have adopted a cautious approach, continuing their selling trend from the previous year by withdrawing Rs 7,608 crore (approximately USD 846 million) from Indian equities during the initial two trading days of January.

This recent withdrawal follows a significant outflow of Rs 1.66 lakh crore (around USD 18.9 billion) recorded in 2025, which was influenced by fluctuating currency rates, global trade uncertainties, and worries regarding potential tariffs from the US, alongside elevated market valuations.

The ongoing selling by FPIs has played a crucial role in the rupee's nearly 5 percent decline against the dollar throughout 2025.

Nevertheless, analysts are optimistic about a potential turnaround in 2026.

VK Vijayakumar, Chief Investment Strategist at Geojit Investments, suggests that the year may see a shift in FPI strategies, as improving domestic economic conditions could attract net foreign investments.

He highlighted that strong GDP growth and the anticipated recovery in corporate earnings are promising signs for positive FPI inflows in the upcoming months.

Similarly, Vaqarjaved Khan, Senior Fundamental Analyst at Angel One, noted that a normalization of trade relations between India and the US, a favorable global interest rate climate, and stability in the USD-INR exchange rate could create an inviting environment for foreign investors.

He also pointed out that equity valuations have become more appealing compared to the previous year, which may further encourage a resurgence in inflows.

Despite these optimistic forecasts, FPIs have commenced 2026 with caution, as data from NSDL indicates a withdrawal of nearly Rs 7,608 crore from Indian equities between January 1 and 2.

This behavior is not uncommon; foreign investors have historically been conservative in January, having withdrawn funds in eight of the last ten years, according to Khan.

As a result, FPI flows are expected to remain highly responsive to global trends and macroeconomic changes.