FPI Selling Extends Into 2026 As Global Risks, Valuation Concerns Persist

Foreign Portfolio Investors (FPIs) have continued their selling streak into 2026, dumping Indian equities worth Rs 11,789 crore between January 1 and January 9, 2026, data from the National Securities Depository Limited (NSDL) showed. The selling came mainly from the secondary market. Primary market flows remained largely insignificant.

After heavy outflows at the start of the month, FPIs briefly turned marginal buyers on January 5 and 6, but the relief was short-lived as selling pressure returned soon after. On January 9 alone, FPIs pulled out Rs 3,709.81 crore from the secondary market.

We are just one week into 2026, and global events have already shaken market confidence. In a surprise early-January operation, US forces struck targets in Venezuela and captured President Nicolás Maduro and his wife, a dramatic escalation that has drawn widespread international attention and concern.

Tension between the US and Denmark also simmered over Greenland, where US President Donald Trump renewed talk of seizing the Arctic territory. Denmark’s defence ministry issued a stark warning that its troops would “shoot first, ask questions later” if any foreign force attempted an invasion.

In the West Asia region, nationwide protests have spread across Iran amid deep economic distress. Authorities have cut internet access as demonstrators clashed with security forces. In response to the unrest, Trump warned Iran of “very hard” consequences if its government resorts to killing protesters, adding fresh uncertainty for the markets.

Further, Trump has backed a sanctions bill that could impose 500 per cent tariffs on countries buying Russian oil, giving the White House leverage against countries like China and India to stop them from purchasing cheap oil from Moscow.

These developments have unsettled global risk sentiment, disrupted investment flows and kept markets on edge at the start of the year.

2025, A Volatile Year For FPI Inflows

The cautious start to 2026 comes after a bruising 2025. FPIs offloaded a net Rs 1.66 lakh crore from Indian equities last year, one of the highest annual outflows on record. While India’s primary markets attracted net inflows of Rs 73,900 crore over the past 12 months, FPIs exited secondary markets to the tune of Rs 2.41 lakh crore.

Quarterly data shows volatile behaviour through 2025. FPIs sold Rs 1.16 lakh crore in the January–March quarter, turned buyers in April–June with inflows of Rs 38,668 crore, and resumed selling in the second half. The July–September quarter saw outflows of Rs 76,609 crore, followed by another Rs 11,760 crore in October–December.

As of December 31, 2025, FPIs’ assets under custody (AUC) stood at Rs 74.26 lakh crore in Indian equities.

Are FPIs Selling Because Of Weak Fundamentals?

The answer to that question is a resounding yet hesitant no. Market experts attribute the FPI selling to global macro risks, not domestic weaknesses.

Sachin Jasuja, head of equities and founding partner at Centricity WealthTech, said a weakening rupee, policy uncertainty in the US and elevated Indian valuations continue to weigh on sentiment. “The rupee is down nearly 5 per cent over the last year, eroding dollar returns. Uncertainties from US tariffs under President Trump and geopolitical tensions have pushed FPIs to de-risk and favour US assets,” Jasuja said.

Ross Maxwell, global strategy operations lead at VT Markets, said high global interest rates and a strong dollar continue to divert capital toward developed markets. “FPIs continue to be cautious toward Indian markets at the start of 2026, just as they were in 2025. This is more to do with global and macro-level headwinds rather than domestic weaknesses,” Maxwell said.

He added that uncertainty around US Federal Reserve rate cuts, sticky inflation in advanced economies, higher US bond yields and tighter global liquidity have reduced appetite for emerging market risk trades.

High Valuations Dim India’s Appeal Among FPIs

Valuations are another key overhang for FPIs, especially when cheaper opportunities exist elsewhere in emerging markets.

“Indian equities appear overvalued to FPIs, with Nifty PE (price-to-earnings) ratios exceeding 23x forward earnings versus emerging market averages below 12x,” Jasuja said. He added that markets such as China and Brazil offer lower valuations and improving earnings prospects.

Jasuja also said that rupee depreciation further dented dollar returns, even where stocks delivered modest gains in rupee terms.

Maxwell concurs with Jasuja, saying “Indian equities do appear to be relatively expensive compared to other emerging markets.” However, he said, “Valuations alone may not turn FPIs away if earnings growth remains superior to other emerging markets.

What Could Bring FPIs Back?

Despite the near-term caution, experts say India’s structural story remains intact.

Maxwell said a strong consumer base, manufacturing capex cycle, infrastructure spending and digitalisation continue to offer long-term growth opportunities that other emerging markets cannot. FPIs, he said, may be willing to pay a “slight premium,” viewing India due to its “stronger growth outlook” rather than as a “purely tactical trade”.

Jasuja said a combination of rupee stability, easing global rates, Reserve Bank of India’s (RBI) policy support, clearer US trade signals and stronger corporate earnings could revive foreign inflows. A meaningful valuation correction, he added, would also improve India’s relative attractiveness.