FPIs turn net sellers again, pull out ₹7,443 crore from Indian equities in first week of September

After two consecutive months of buying, foreign portfolio investors (FPIs) have turned net sellers in the Indian equity market during the first week of September. They pulled out ₹7,443 crore, driven by a rebound in crude oil prices, rising U.S. bond yields, and a firm dollar, which collectively diminished risk appetite for emerging markets.

This outflow marks a reversal from recent trends. FPIs had infused ₹30,919 crore in August and ₹20,200 crore in July, following a four-month spell of net selling from March to June. With the latest withdrawal, the total outflow by FPIs from Indian equities has climbed to ₹2.32 lakh crore in 2026 so far, surpassing the ₹1.66 lakh crore recorded in the entire 2025.

Market analysts attribute the renewed selling to external and domestic factors. Rajkumar Rathi, Chief Investment Officer at YES Securities, said the rebound in crude oil prices has raised concerns over India's inflation trajectory and current account outlook. Additionally, strengthening U.S. bond yields and a firm dollar index have reduced foreign risk appetite for emerging markets.

Mr. Rathi also pointed to India's premium equity valuations, particularly in growth-oriented sectors and the mid- and small-cap segments. These elevated valuations, he noted, are prompting foreign funds to book profits and rebalance their portfolios. However, he added that foreign investor appetite for India's primary market remains 'structurally resilient', indicating sustained interest in initial public offerings and other fundraising routes.

Looking ahead, global bond yields are likely to remain a key determinant of FPI flows, according to V.K. Vijayakumar, Chief Investment Strategist at Geojit Investments. He emphasised that movements in the U.S. Treasury yields and the dollar will continue to influence capital flows into Indian markets.

Other factors that could shape foreign fund flows in the near term include Brent crude price movements, evolving U.S.-Iran geopolitical tensions, and the upcoming U.S. inflation data scheduled for release ahead of the U.S. Federal Reserve's mid-September policy meeting, said Pabitro Mukherjee, Deputy Vice President-Research at Bajaj Broking.

Foreign investors also extended their selling to the debt market during the week. They withdrew ₹377 crore through the Fully Accessible Route (FAR) and ₹231 crore through the Voluntary Retention Route (VRR), while investing ₹217 crore through the general route. This mixed activity in the debt segment reflects a cautious stance among foreign investors amid global uncertainties.

The reversal in FPI flows comes at a time when Indian markets are closely watching global cues. While domestic institutional investors have often stepped in to counteract foreign selling, sustained outflows could pressure liquidity and market sentiment. However, analysts believe that the underlying strength of India's primary market and its long-term growth story may continue to attract foreign capital once global conditions stabilise.

The figures also highlight the volatility in foreign investment patterns. After a prolonged selling spell earlier in the year, the two months of inflows in July and August had raised hopes of a sustained revival. The latest outflow, though relatively modest, serves as a reminder of how sensitive global capital flows are to changes in macroeconomic conditions.

Observers will now keenly track the next set of data from the U.S., including inflation numbers and the Federal Reserve's policy decision, as these are likely to set the tone for capital flows to emerging markets like India in the coming weeks.