Foreign portfolio investors (FPIs), once a formidable force on Dalal Street, have seen their clout diminish against the backdrop of the massive selling over the last two years. At the same time, domestic institutions and retail investors have stepped in to absorb the flows.
According to a recent mint analysis, the ownership of FPIs in companies listed on the National Stock Exchange (NSE) shrank to a 15.5-year low of 16.7% in the quarter ended December. At the same time, domestic mutual funds’ stake rose to a record high of 11.1%.
According to Pranav Haldea, Managing Director, PRIME Database Group, the balance of ownership in Indian equities is tilting inward, reinforcing the market’s growing atmanirbharta (self-reliance), as MFs alone seem set to overtake FPIs in the coming quarters.
This trend started with demonetisation in 2016 and accelerated during Covid years.
FPI Trend Tracker
FPIs sold Indian equities worth ₹74,031 crore in the ongoing financial year till January 2026. This comes on top of ₹127,041 crore sold in the last financial year.
According to Dr VK Vijayakumar, Chief Investment Strategist, Geojit Investments, recent trends, however, tell a different story. In the last 13–14 trading days of February, FPIs were buyers on eight occasions, and even on days of market correction, net selling remained limited.
According to data from NSDL, ₹14,988 crore this month”>FPIs have net purchased stocks worth ₹14,988 crore this month, looking to reverse the three-month selloff. That said, overall FPIs remain in selling mode for the ongoing fiscal.
In contrast, SIP mutual funds have remained robust despite the ongoing volatility in the Indian stock market. In the first ten months of FY26, mutual fund SIP inflows have already surged to ₹2.87 lakh — equivalent to 99 % of the total SIP contributions recorded in the entire FY25, highlighting the sustained rise in retail participation.
But does FPI selloff create disproportionate risks for domestic investors, or is it a structural advantage for the market?
Reduced FPI dependence: Boon or bane?
G. Chokkalingam, Head of Research at Equionomics Research, said that nobody can deny that the market is driven by fundamentals, but in the short-to-medium-term, it is also driven by liquidity.
FPI selling has historically triggered sharp volatility — during the Lehman crisis, Covid, and Sep 2024–Feb 2025, when the market lost ₹100 trillion; even when DIIs bought heavily, markets fell significantly, highlighting the market veteran.
Therefore, he believes that over the long term, reduced FPI dependence is positive, as domestic institutions and retail investors now help stabilize volatility.
This is evident in the Sensex and Nifty movements over the last two years. Despite heavy FPI selling, both benchmark indices have managed to deliver positive annual returns and even scale fresh all-time highs.
He also sees it as a boon for the Indian rupee. Chokkalingam points out that markets historically driven by FPIs saw sharp volatility that also impacted the rupee, import bills, and borrowing costs. “Consciously reducing dependence on FPIs is good for the market and the economy,” he said.
FPI outlook 2026 & beyond
Both experts, however, do not anticipate FPIs staying away from India for long. “I believe 2026 will be different from the last two years. Many mid-cap stocks are now appealing — valuations are attractive. FPIs have historically created tremendous wealth by being long-term investors, and their medium-to-long-term holding period gives confidence,” said Chokkalingam.
A key factor working in India’s favour, alongside the strong fundamentals, India-US trade deal is the weakness in the US dollar.
“Foreign investors in US equities, who may have earned 12–14% returns, only received 2–4% dollar-denominated returns because of depreciation. They also faced huge losses in US bonds. Total investment by foreign investors in US bonds and equities is estimated at around $30 trillion, with losses of roughly $3 trillion last year, mostly in bonds due to the weaker dollar. Global macro indicators suggest further dollar weakness. Therefore, FIIs are unlikely to sell in emerging markets like India to buy US assets,” opined Vijayakumar.
Additionally, the AI trade, which dominated global markets last year, is unlikely to continue. There could be corrections globally — a minor correction would actually be positive for Indian stocks, he added.
While India was touted as the anti-AI trade last year and faced heavy FPI outflows last year, the Indian IT services continue to see headwinds on AI-led disruptions.
Further support from earnings recovery also cannot be ruled out. Earnings growth is at an eight-quarter high of 14.7%, and indications suggest this recovery will continue in Q4 and gather further momentum in FY27. Earnings growth of 15–16% is likely in FY27, which the market will start discounting, opined the Geojit expert.
“These factors suggest that FPIs are unlikely to replicate the heavy selling seen in the past two years,” Vijayakumar notes. “Global macro and earnings fundamentals both point to a more supportive environment.”
Disclaimer: This story is for educational purposes only. The views and recommendations expressed are those of individual analysts or broking firms, not Mint. We advise investors to consult with certified experts before making any investment decisions.
