Poor earnings, weak rupee keep FPIs underweight on Indian stocks in 2026

Analysts tracking overseas investor sentiment say Indian stocks are currently "not a compelling buy" for global funds right now

Why FPIs are selling Indian stocks

 

Foreign portfolio investors (FPIs) continue to remain cautious on Indian equities amid concerns over a delayed earnings recovery, sustained depreciation of the Indian rupee, and elevated valuations. Analysts tracking overseas investor sentiment say Indian stocks are currently "not a compelling buy" for global funds.

 

According to analysts at Emkay Global Financial Services, foreign investors remain sceptical about India Inc's earnings outlook and are unwilling to increase exposure until there is visible improvement in growth trends and currency stability.       

  "There is persistent doubt around earnings recovery, with most investors preferring to wait for tangible evidence. The rupee remains the overarching concern, keeping global funds cautious until there are clear signs of reversal," Emkay Global said in a January 29 note following meetings with US-based long-only and hedge funds.

 

 

The cautious stance has translated into sustained foreign fund outflows. FPIs sold Indian equities worth nearly $18.9 billion (₹1.66 trillion) in 2025, amid repeated earnings downgrades, weak AI-led investment momentum, and relatively expensive valuations. Selling pressure continued into January 2026, with net outflows of $3.97 billion (₹35,890 crore), according to NSDL data. 

Why US investors are staying cautious on Indian equities

 

Sluggish earnings recovery

 

Foreign investors remain concerned about the pace and durability of India's earnings recovery. Repeated downgrades to corporate profit estimates in FY25 and FY26, coupled with failed turnaround expectations, have weakened confidence.

 

Large sectors such as information technology (IT), consumer staples, and banking and financial services (BFSI) are witnessing structurally slower growth, raising concerns that consensus expectations for FY27 may be overly optimistic. 

 

While street estimates point to a 14 per cent year-on-year growth in Nifty50 earnings per share (EPS) in FY27, this follows muted growth of about 3 per cent in FY25 and a likely 7 per cent rise in FY26. As a result, FPIs are adopting a wait-and-watch approach until earnings momentum improves meaningfully. 

Weak Indian rupee

 

Currency depreciation remains a major deterrent for foreign investors, as rupee weakness erodes dollar-denominated returns. The Indian rupee has depreciated nearly 7.5 per cent against the US dollar since the announcement of US tariffs on April 4, 2025, keeping global investors cautious.

 

Despite the dollar index declining over 6.5 per cent during the same period, concerns around INR volatility have prompted FPIs to defer incremental investments in Indian equities.

 

"US investors are closely monitoring a turnaround in the INR/USD pair. Many see the conclusion of the India–US trade agreement as a potential trigger for the rupee to stabilise and strengthen," Emkay Global noted.

 

 

Valuation concerns

 

While FPIs continue to acknowledge India’s long-term growth story, valuations become a concern in the absence of earnings support. According to Emkay Global, rich valuation multiples are not a standalone deterrent, but weak earnings growth brings valuation risks into sharper focus.

 

Where are FPIs investing?

 

Despite broad caution, foreign investors see relative attractiveness in select pockets of the market, including mid-cap financials, industrials, and discretionary stocks. Technology remains the least preferred sector due to earnings uncertainty.

 

FPIs also recognise the alpha potential in small- and mid-cap stocks (SMIDs), but high volatility and downside risks warrant a highly selective investment approach with strict valuation discipline, Emkay Global analysts said.