Foreign investors pull ₹16,500 cr from equities; FPI share hits 13-yr low

If you’ve been watching the markets through FY26, one thing is hard to miss: foreign investors have been restless. Money has moved in and out quickly, sentiment has flipped more than once, and headlines around FPI selling have become familiar.

 

The Economic Survey 2025–26 puts hard numbers behind that unease.

 

Foreign Portfolio Investors (FPIs) have been net sellers of Indian equities for most of FY26, with cumulative outflows of ₹16,500 crore as of January 13, 2026. What’s changed, however, is where that money is going—and who is quietly filling the gap.

 

Equity Out, Debt In: The FPI Flip

 

 

FY26 has not been a straight-line story for foreign flows.

 

Q1 FY26: FPIs were net buyers of equities and net sellers of debt

 

Q2 & Q3 FY26: The trend reversed—FPIs sold equities but turned buyers of debt 

Overall, FPIs were net sellers of Indian securities from April to December 2025.

 

April–December 2025: On balance, FPIs exited Indian equities

 

This rotation reflects more than just India-specific concerns. The Survey points to a mix of global risk aversion, elevated US bond yields, trade and policy uncertainty, and rupee depreciation weighing on equity allocations—especially in export-oriented sectors like IT and healthcare. 

 

Why Indian Bonds Are Back on the Radar

 

While equities struggled to attract foreign capital, Indian debt quietly became more appealing toward the end of 2025.

 

The spread between 10-year Indian and US government bond yields, which had narrowed to about 165 basis points in May 2025, widened again to around 250 basis points by December as Indian yields rose and the US dollar weakened.

 

That matters. A wider spread improves risk-adjusted returns for global investors—and explains why FPIs turned net buyers of Indian debt in the second half of the year. The Survey also flags SEBI’s relaxation of FPI norms and ongoing India–US trade discussions as supportive tailwinds for future debt inflows. 

 

The Big Cushion: Domestic Money Steps Up

 

Here’s where the narrative changes—and where India’s market structure looks very different from a decade ago.

 

As foreign investors pulled back, domestic institutional investors (DIIs) stepped forward. Mutual funds and insurance companies remained consistent net buyers, cushioning the impact of FPI selling. 

Source: Eco Survey report

 

By Q2 FY26, DIIs held 18.3% of NSE-listed equities by value, overtaking foreign investors at 16.7%, a 13-year low for FII ownership. This isn’t a one-off blip. Domestic mutual funds alone now account for 10.9% of equity ownership, an all-time high.  

As of December 31, 2025, the assets under custody (AUC) of foreign portfolio investors (FPIs) rose to ₹81.4 lakh crore, up 10.4% from March-end 2025, even though FPIs were net sellers of Indian equities for much of FY26. 

 

This apparent contradiction is explained largely by valuation gains in equity holdings during market rallies and steady accumulation of debt securities, rather than fresh equity inflows. 

 

Within NSE-listed equities, however, the trend was less supportive: FPI ownership slipped to 16.9% in Q2 FY26, reflecting global risk aversion, sectoral reallocation away from export-oriented stocks, and the impact of higher global bond yields and currency pressures on foreign investor sentiment.

 

At the same time, domestic institutional investors (DIIs) have played a decisive stabilising role in the equity markets. Mutual funds and insurance companies continued to buy consistently through periods of foreign selling, pushing DII ownership in NSE-listed equities to 18.7% by September 30, 2025.

 

 This steady domestic participation has structurally altered market dynamics. In Q2 FY26, DIIs’ share of equity ownership rose to 18.3%, overtaking FPIs at 16.7%—a 13-year low for foreign investors

 

In effect, India’s markets are no longer hostage to foreign flows in the way they once were.

 

What This Means for Investors

 

Foreign capital remains important, but it is more tactical and globally sensitive than before

Domestic savings are now the stabilising force, reducing volatility during global risk-off phases

Debt markets may see steadier foreign interest even when equities face pressure

 

The combined share of DIIs, retail investors, and high-net-worth individuals has climbed to 27.8% of equity ownership, the highest on record. That shift is structural—and it changes how market drawdowns play out.