The bleeding isn’t slowing down. Foreign portfolio investors are on track for the biggest annual withdrawal from Indian equities in years, having already stripped nearly $30 billion from the market. Bloomberg data shows this figure has already blown past the $19 billion pulled out in 2025, with about three months left in the calendar year. It’s a historic exit. The selling pace has accelerated sharply in recent months, with overseas funds offloading $4.1 billion in September and nearly $1.5 billion in October alone. Another $500 million vanished in Monday’s trade.
Why the mass exodus? A toxic mix of rising US Treasury yields, a strengthening dollar, and spiking global crude prices. For India, a heavy oil importer, surging energy costs are a macroeconomic headwind. They widen the current account deficit, stoke inflation, and squeeze the currency. Pranjul Bhandari, chief India economist at HSBC, put it bluntly: “FDI and FPI inflows are not an exciting story yet. Higher dollar and yields are generally negative for Asian economies.” She added that the firm remains cautious on oil prices and surging global yields.
Here’s the nuance. FPIs aren’t fleeing India entirely; they’re just trimming their secondary market exposure. They’ve actually bought nearly $6 billion worth of Indian shares through the primary market over the same period. This suggests continued interest in new issuances, even as they reduce holdings in listed stocks. The cumulative net purchases since 2011 have effectively hit zero, marking the third consecutive year of net selling.
The rupee is taking the hit. It has depreciated nearly 7% against the US dollar this year, closing at 96.30 on Monday. But don’t panic just yet. Domestic institutional investors, including mutual funds and insurance companies, have been the backbone of the market. They’ve bought about $68 billion worth of Indian equities between January and October, absorbing a massive chunk of the foreign outflows.
Valuations have moderated as a result. The benchmark Nifty 50 has lost more than 19% in dollar terms since the start of the year. It now trades at less than 17 times one-year forward earnings, well below its five-year average of 19.5 times. For long-term investors, this compression might offer entry points, but the immediate trajectory remains dictated by global macro forces.
India’s outflows are part of a broader emerging market trend. South Korea has seen nearly $127 billion leave its equity market, while Taiwan has recorded outflows of about $34 billion. Yet, a curious divergence exists: despite these heavy exits, South Korea’s and Taiwan’s benchmark indexes have rallied 78% and 70% in dollar terms, respectively. The lesson? Foreign flows don’t always dictate market performance. Watch the rupee and US yields closely for the next three months; they’ll likely hold the key to any reversal in Indian equity sentiment.