Foreign institutional investors (FIIs) have begun 2026 with a cautious stance, continuing their selling trend in Indian equities that emerged in 2025. In the initial two trading sessions of the new year, FIIs sold shares worth ₹7,608 crore, extending a significant outflow that saw them offload ₹22,611 crore in December alone. This brings the total foreign outflow for 2025 to an alarming ₹1,66,286 crore, marking one of the most challenging periods for FII participation in the Indian market.
Unprecedented Selling Pressure
The selling spree by FIIs throughout 2025 has been described as unprecedented. V K Vijayakumar, chief investment strategist at Geojit Investments, noted it as the worst phase of FII selling since foreign investments in Indian markets began. Overall, FIIs sold equities worth ₹2.40 lakh crore in the secondary market during the year. Nevertheless, investments amounting to ₹73,909 crore through the primary market helped cushion the effects of these outflows. December alone saw secondary market selling peak at ₹30,332 crore, suggesting ongoing pressure on Indian equities.
Market analysts attribute the continued exit of FIIs to various factors, including relatively high valuations in India and a global shift toward artificial intelligence-linked trades. This relentless selling has also contributed to the depreciation of the Indian rupee, which emerged as the worst-performing major currency in 2025, dropping nearly 5% against the US dollar.
Quarterly Flow Dynamics
A closer look at quarterly flows reveals a major contrast in FII behavior throughout 2025. The January-March quarter witnessed a substantial outflow of ₹1,16,574 crore, setting a negative tone for the year. However, this trend reversed briefly in the April-June quarter, where inflows reached ₹38,673 crore. Despite the rocky start to 2026, market experts remain optimistic about a potential turnaround as the year progresses.
Vijayakumar anticipates a shift in FII strategy, spurred by improvements in India’s economic fundamentals. He believes that strong GDP growth and an expected recovery in corporate earnings could lure net FII inflows in 2026. His optimism is shared by other market analysts, who suggest that the outlook for the Indian market may brighten as macroeconomic indicators show signs of recovery.
Future Projections and Market Sentiment
Nilesh Jain, head vice president of equity research at Centrum Broking, offers a positive outlook for 2026. He predicts the Nifty index could reach a target of 29,731 by December, indicating a potential upside of 13%. Jain attributes this optimistic perspective to improving macroeconomic indicators, including stronger GDP growth, easing inflation, and an end to corporate earnings downgrades.
Despite the hurdles faced in 2025, such as the rupee’s depreciation and high US tariffs that hindered trade agreements, analysts remain confident in the potential recovery of the Indian market. The underperformance of India compared to global emerging markets in 2025, marking its weakest performance in three decades, has led to heightened expectations for a rebound as conditions improve.
Digihunt is not a financial advisor and this is not investment advice.