Foreign portfolio investors (FPIs) have remained net sellers in the Indian stock market in five of the last seven sessions in January as the record selloff seen in 2025 showed no signs of abating.
After a record net outflow of 166,286 crore last year, FPIs have additionally sold Indian equities worth 11,789 crore this month, according to data available on NSDL. This has pushed the Nifty 50 index 1.71% lower so far in January.
What’s driving FPIs away?
Threats of Trump tariffs, increased geopolitical uncertainty, and currency volatility have kept FPIs away from Indian equities, and these factors have compounded in the initial two weeks of the year.
US President Donald Trump earlier this week threatened fresh tariffs on India in the case of non-suspension of the purchase of Russian oil. A bipartisan US bill proposing tariffs of up to 500% on countries buying Russian oil has received Trump’s backing and awaits congressional approval.
The US has imposed base 25% tariffs on India along with an additional 25% tariffs due to India’s purchase of Russian oil, which Washington sees as helping Russia fund the war in Ukraine. This has further dented investor sentiment as it creates fresh hurdles for the already elusive India-US trade deal.
India and the US have had six rounds of trade negotiations but have not yet reached an agreement.
The US military action against Venezuela last week has also heightened global risk aversion, making riskier assets like emerging market equities less lucrative for FPIs.
Santosh Meena, Head of Research at Swastika Investmart, said the primary driver is the resurgent US Dollar and currency volatility. The Indian rupee depreciated nearly 5% in 2025, and continued weakness is eroding dollar returns for foreign investors, prompting them to hedge by exiting emerging markets.
This caution is compounded by geopolitical and trade uncertainty. “The recent US military action in Venezuela has spiked global risk aversion, driving capital toward “safe-haven” US Treasuries rather than riskier emerging market equities. Furthermore, the looming threat of higher US tariffs on Indian exports—stemming from ongoing US-India trade negotiations—is keeping investors on the sidelines until policy clarity emerges,” said Meena.
Additionally, Nikunj Saraf, CEO of Choice Wealth, believes that after sharp portfolio adjustments in 2025, many FPIs are still in a capital-preservation mode, waiting for clearer signals on global policy direction and growth.
A major chunk of FPI selling is more to do with global and macro-level headwinds, as the domestic macro environment remains positive.
Going ahead, a strong set of earnings could make Indian equities more attractive for FPIs. In Q3FY26, MOSL analysts see earnings growing 16% year-on-year, the highest in eight quarters.
CLSA, in a recent report, said that India’s relative valuations have become more lucrative. This, along with steady earnings growth, could bring back investor interest in India in 2026.
Apart from this, a structural reversal in FPI flows will likely depend on currency stability. Any signal from the RBI or global currency markets that the rupee has found a floor would reduce the hedging cost for foreign investors, said Meena.
On the macro front, clarity on the US Fed’s rate path and the outcome of the Union Budget 2026 will be pivotal.
Ross Maxwell, Global Strategy Operations Lead, VT Markets, said clear indications from the US Fed toward sustained rate cuts would ease yield differentials and weaken the US dollar, making emerging markets more attractive.
“Ongoing tensions between the US and Venezuela can create short-term volatility in crude prices. If prices can stabilize, this would support India’s current account dynamics and help the rupee, reducing currency risk for foreign investors,” he added.
Lastly, any positive breakthrough in India-US trade talks regarding tariff exemptions would immediately de-risk export-oriented sectors, likely inviting swift FPI inflows back into these heavyweights.
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.
