FII Sell-off Hits Rs 2.06 Lakh Cr in 2026: What’s Behind The Resumed Exodus?

Foreign institutional investors (FIIs) continued their selling spree in April 2026. In just four months, FIIs offloaded Indian equities worth nearly Rs 2.06 lakh crore. So far, in May, FIIs have sold net equities worth Rs 14,275.19 crore. On May 8, the last trading day of the first week of May, FIIs sold net Indian equities worth Rs 4,110.60 crore

Notably, the exodus seen in 2026 is one of the most brutal exits D-Street has witnessed as the sell-off already exceeds the total FII outflows for the entirety of 2025 (Rs 1.66 lakh crore). In January, FIIs sold net equities worth Rs 41,435 crore, in March the selling amounted to Rs 1,17,775 crore and in April, it was around Rs 60,847 crore. The tally for the first four months exceeded the selling activity for 2025, despite a brief relief in February, when FIIs became net buyers of Indian equities, purchasing stocks worth Rs 22,615 crore.

Amid the sell-offs it becomes important to examine the reasons behind the sell-off, as the sentiment of foreign investors has remained negative despite the rally seen in April. Notably, the Nifty 50 delivered its best monthly performance by zooming 5.81 per cent return in April, its best monthly performance since late 2024.

Why Are FIIs Selling Indian Equities

Several global and domestic factors have contributed to FIIs selling Indian equities. Here’s a look at some of the factors:

"Risk-Off" Sentiment

One of the key causes behind the FII selling spree is the escalation of the US-Iran conflict. Typically in times of war, global funds tend to instinctively pull out of "risky" emerging markets in developing countries like India and move their funds into relatively safer  assets, like US Treasury bonds and gold.

According to a release by the US Department of the Treasury, private foreign investors fuelled a net inflow of $147.30 billion into long-term US securities in February, specifically targeting the safety of dollar-denominated debt.

Crude Oil & Inflation Trap

The surge in Brent crude prices past the $110 per barrel mark caused by supply chain threats in West Asia also added to concerns around India's macro-vulnerability. These high oil prices have a two pronged effect, such as a widening trade deficit, as imports become more expensive and the depreciation of the rupee against the dollar, which leads to FII returns getting “taxed” each time they convert their profits back to dollars.

The Allure of US Yields

The US Federal Reserve’s “higher for longer” interest rate stance also kept the US 10-year Treasury yields near 4.50 per cent. Given the uncertainty, a guaranteed 4.50 per cent return often becomes more lucrative for FIIs compared to a volatile 10-12 per cent return in a depreciating currency.

“AI Rotation” to North Asia

FIIs have also shifted their sectoral allocation within the Asian markets. South Korean and Taiwanese markets become preferable as a part of this rotation as they are direct beneficiaries of the global AI and semiconductor hardware boom. Compared to those markets, Indian IT stocks have faced pressure due to slowing US discretionary spend, making them a primary target for FII selling.

While the FII exit seen in the first few months of 2026 is aggressive, the Indian stock market has not collapsed. The market is currently supported by strength from the buying by domestic institutional investors (DIIs), as they have infused over Rs 3 lakh crore in the same period. The “FII Exodus” is still being countered by a domestic influx marking a permanent shift in the ownership of the Indian stock market.