After record selling last year, India’s strong fundamentals to attract net FII inflows in 2026: Analysts

India experienced unprecedented foreign institutional investor (FII) equity withdrawals in 2025, though strengthened economic indicators are expected to drive net positive FII investments in 2026, according to market experts.

FIIs offloaded equities worth Rs 30,332 crore via exchanges in December alone, contributing to a total sell-off of Rs 240,193 crore throughout 2025. Despite Rs 73,909 crore in primary market investments during the year, net FII outflows reached Rs 166,283 crore as per NSDL records.

This represents the most significant divestment since FIIs began operating in India. Dr. VK Vijayakumar, Chief Investment Strategist at Geojit Financial Services, noted: “While 2024 saw Rs 121,210 crore in secondary market sales, primary investments kept net flows positive. 2025 marks a historic outflow at Rs 166,283 crore net selling.”

Analysts identified India’s premium market valuations and shifting global capital toward artificial intelligence sectors as key drivers behind FII exits. Persistent selling pressure contributed to the rupee depreciating 5% against the US dollar last year.

“2026 will likely bring strategic adjustments in FII activity,” Vijayakumar observed. Market participants anticipate renewed foreign investments given India’s projected GDP expansion and enhanced corporate earnings potential.

Domestic institutional investors (DIIs) substantially offset foreign outflows through continuous buying. A Motilal Oswal Financial Services report highlighted DIIs purchasing $8.7 billion in equities during November – their 28th consecutive month of net buying. Year-to-date 2025 inflows reached $81.3 billion, exceeding full-year 2024 volumes.

(Source: IANS)