Foreign investors selling returns in September; 2026 equity outflow rises to Rs 2.32 lakh crore

New Delhi: Foreign Portfolio Investors (FPIs) resumed selling Indian equities at the beginning of September, withdrawing Rs 7,443 crore in the first four trading days of the month as rising crude oil prices and tightening global financial conditions weighed on investor appetite.

The renewed selling interrupted two consecutive months of foreign inflows. FPIs had invested more than Rs 29,600 crore in August and Rs 20,200 crore in July, following four straight months of withdrawals between March and June.

However, the buying in July and August provided only a temporary break from the broader foreign fund exodus witnessed during the year.

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With the latest withdrawal, net FPI outflows from Indian equities have climbed to Rs 2.32 lakh crore so far in 2026, according to data from the National Securities Depository Limited (NSDL). The figure has already surpassed the Rs 1.66 lakh crore withdrawn during the whole of 2025.

The NSDL’s year-wise investment data showed net equity selling of Rs 7,443 crore between September 1 and September 4.

Crude oil and US yields pressure flows

Rajkumar Rathi, Chief Investment Officer at YES Securities, attributed the latest round of selling partly to a rebound in crude oil prices, which has renewed concerns about India’s inflation and current-account outlook.

India imports a substantial portion of its crude oil requirements, making domestic financial markets sensitive to sharp increases in global energy prices. Higher oil prices can raise the country’s import bill, add to inflationary pressure and weigh on the rupee.

“Further strengthening US bond yields and a firm dollar index have reduced foreign risk appetite for emerging markets,” Rathi said.

Higher US bond yields make dollar-denominated assets relatively more attractive, potentially encouraging global investors to reduce exposure to emerging markets. A stronger dollar can add to the pressure by affecting currency-adjusted returns from Indian assets.

Rathi said relatively expensive valuations in parts of the Indian market, particularly growth-oriented stocks and the mid- and small-cap segments, had also encouraged foreign investors to book profits and rebalance their portfolios.

IPO market continues to attract investors

Despite sustained selling in listed equities, foreign participation in India’s primary market has remained resilient, according to Rathi.

“As seen in early September, the pipeline of upcoming IPOs will continue to act as a distinct sponge for foreign capital. If companies price their primary offerings attractively, it will structurally sustain primary-market FPI inflows, even if the secondary market faces net selling,” he said.

The divergence indicates that foreign investors are not withdrawing uniformly from India. While they have reduced their exposure to existing listed shares, they continue to selectively invest in new public offerings where valuations and growth prospects are considered attractive.

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Global events to determine near-term direction

V K Vijayakumar, Chief Investment Strategist at Geojit Investments, said movements in global bond yields would remain an important determinant of foreign investment flows.

Brent crude prices, developments in the US-Iran conflict and upcoming US inflation data ahead of the Federal Reserve’s September policy meeting are also expected to influence foreign investor behaviour, said Pabitro Mukherjee, Deputy Vice President for Research at Bajaj Broking.

Foreign investors extended their selling to parts of the debt market during the period. They withdrew Rs 377 crore through the Fully Accessible Route and Rs 231 crore through the Voluntary Retention Route. These withdrawals were partly offset by an investment of Rs 217 crore through the general debt route.

The equity outflow of Rs 2.32 lakh crore in 2026 shows that the two-month return of foreign buying in July and August was not sufficient to reverse the year’s broader trend. Whether the September selling develops into another sustained withdrawal will depend largely on oil prices, the dollar, US interest-rate expectations and the relative valuation of Indian shares.

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