Rupee pressure, FII exits dominate 2025; corporate earnings seen reviving flows in 2026

India’s robust GDP growth and anticipated improvement in corporate earnings next year signal potential positive foreign institutional investor (FII) flows in 2026, market experts noted on Saturday. This comes alongside FII selling in December surpassing Rs 22,130 crore.

Foreign institutional investors have net sold shares worth Rs 1,58,407 crore in CY25, marking their heaviest selling since they began investing in India. Despite this trend, analysts highlight emerging potential for a reversal in foreign institutional investor outflows, citing strong macroeconomic fundamentals and earnings visibility.

Dr. VK Vijayakumar, Chief Investment Strategist at Geojit Financial Services, commented, “With 2025 drawing to a close, FII selling in India is poised to set a record for annual outflows.”

FIIs sold equities worth Rs 1,21,210 crore through exchanges in 2024, though the year concluded with net positive inflows of Rs 1,21,637 crore due to primary market investments. The net sales for 2025, however, remain substantial.

Sustained FII selling, combined with India’s elevated trade deficit, significantly pressured the rupee in 2025. The currency depreciated approximately 5% annually but traded flat on Friday despite recovering crude oil prices. Notably, net foreign direct investment (FDI) nearly doubled to $6.2 billion during April–October compared to $3.3 billion a year earlier, partly due to reduced foreign capital repatriation.

Gross inward FDI rose marginally to $58.3 billion in April–October from $50.5 billion year-on-year, while repatriation fell to $31.65 billion from $33.2 billion. Emkay Global Financial Services highlighted in a recent report that rupee volatility may deter foreign portfolio investors (FPIs), predicting inflows only after prolonged currency stability. The report also noted FPIs’ continued preference for large-cap stocks and overweight stance on financials.