The withdrawal of funds followed the largest outflow of Rs 1.66 lakh crore (USD 18.9 billion) recorded in 2025, triggered by volatile currency movements, global trade tensions and concerns over potential US tariffs, and stretched market valuations.
This sustained selling pressure by foreign portfolio investors (FPIs) has significantly contributed to the nearly 5 per cent depreciation of the rupee against the dollar during 2025.
However, market experts believe the tide could turn in 2026.
VK Vijayakumar, Chief Investment Strategist at Geojit Investments, said the year is likely to witness a shift in FPI strategy, as improving domestic fundamentals may start attracting 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, he added.
Echoing similar views, Vaqarjaved Khan, Senior Fundamental Analyst at Angel One, said normalisation in India-US trade relations, a benign global interest rate environment and stability in the USD-INR pair could create a favourable backdrop for foreign investors.He noted that equity valuations have become relatively comforting compared to last year, which could further support a revival in inflows.
Despite these positive expectations, FPIs have begun 2026 on a cautious note, and according to data from NSDL, they pulled out nearly Rs 7,608 crore from Indian equities between January 1 and 2.
This trend is not unusual, as foreign investors have historically remained guarded in January, having withdrawn funds in eight out of the past ten years, Khan said.
Consequently, FPI flows are likely to remain highly sensitive to global cues and macroeconomic developments. While high valuations were a key concern over the past year, that pressure appears to have eased for now, offering some room for optimism going ahead, he added.
