Foreign portfolio investors extended their pullback from Indian stocks in May, taking their total withdrawal from the market in 2026 to over Rs 2 lakh crore as global economic concerns continue to weigh on sentiment. FIIs have withdrawn Rs 14,231 crore so far this month, adding to a year marked by persistent selling pressure, data from NSDL showed. The cumulative outflow this year has now surpassed the Rs 1.66 lakh crore withdrawn by foreign investors during the entire year of 2025. The pattern through 2026 remains largely negative, with February standing out as the only exception. January opened with foreign institutional investors selling shares worth Rs 35,962 crore.
However, in February, foreign investors briefly reversed course, bringing in Rs 22,615 crore, their largest monthly investment in 17 months. This momentum did not last. March recorded the sharpest reversal, with a record Rs 1.17 lakh crore exiting Indian equities. April was followed by another sharp inflow of Rs 60,847 crore, while May continued the same trajectory. “The sell-off was largely driven by continued global macroeconomic uncertainty, particularly concerns over inflation, interest rates and geopolitical risks, which continued to weigh on sentiment towards emerging markets,” said Himanshu Srivastava, research director at Morningstar Investment Research India.
According to Srivastava, uncertainty about how global interest rates will move remains central to the behavior of foreign investors. Rising crude oil prices and unresolved geopolitical tensions, especially in the Middle East, have kept inflation concerns high around the world, forcing investors to reassess hopes for near-term interest rate cuts by major central banks. This backdrop has supported strong global bond yields, increasing the attractiveness of debt instruments in developed markets while dampening investor appetite for emerging market equities such as India. He also said that intermittent weakness in the Indian rupee affected foreign investors’ returns when measured in dollars. Even with the ongoing sell-off, foreign investors have not completely moved away from Indian markets. FIIs have shown selective interest in sectors such as energy, construction and capital goods, said VK Vijayakumar, chief investment strategist at Geojit Investments. Mid-cap stocks and some small-cap stocks with strong earnings and growth potential also attract investors’ attention, he noted. Vijayakumar said currency devaluation and concerns over India’s earnings growth played an important role in shaping FDI outflows this year. He added that markets such as South Korea and Taiwan are currently seeing stronger interest in FPI, supported by better earnings growth prospects linked to the AI boom.
