In one of the longest selling sprees, foreign institutional investors (FIIs), have pulled out more than USD 45 billion or Rs 4.23 lakh crore ($1 = Rs 94) from the Indian market in the last 18 months. Even after the recent correction, triggered by the West Asia crisis, which made Indian markets look attractive to equity investors, Flls show no hurry to return and are favouring other markets like Korea and Taiwan instead.
N. ArunaGiri, CEO, TrustLine Holdings said that due to FII exodus, India’s weight in the MSCI index has declined from a peak of around 20% to nearly 12% today. In contrast, Korea’s weight has increased by over 50% to about 15%, and Taiwan has also seen a meaningful rise.
“What is particularly intriguing is what has happened post April 1, 2026. Following the ceasefire announcement in the Middle East and the subsequent recovery across emerging markets, one would have expected FII flows to turn positive for India, especially given the extent of underperformance and the magnitude of prior outflows,” added ArunaGiri.
However, data shows that between April 1 and April 23, 2026, FIIs have continued to sell in India - over $5 billion - while allocating roughly $4 billion odd to Korea and over $5.5 billion to Taiwan. This divergence has surprised even seasoned observers, said ArunaGiri, adding that historically, large FII outflows have been followed by strong inflow cycles.
“But this time could be different. FIIs are predominantly large-cap, top-down investors. Their participation typically requires clear sectoral leadership. Currently, that visibility is limited. The IT sector is undergoing a phase of derating, and private banks - traditionally a core FII allocation - have delivered muted performance and visibility. In the absence of a clear index driver, India’s relative attractiveness diminishes in a global allocation framework.”
“Moreover, if markets remain in a sideways, stock-specific phase, as is widely expected, FII participation could remain subdued. This environment tends to favour domestic, bottom-up investors rather than global flows,” he said.
The FII exodus is also in line with the underperformance of the Indian equity market over the past 18 months. The local benchmark indices - BSE Sensex and NSE Nifty - are down by 12-13% at the moment when compared to the highs of September 2024.
In 2025 FIIs had net sold equity worth Rs 166,283 crores, the highest annual outflow ever recorded in the Indian capital market. The sharp selling impacted the performance of the Indian market and also weakened the rupee by about 5%. The total FPI selling for 2026, so far, stands at a whopping Rs 187,439 crores.
V K Vijayakumar, Chief Investment Strategist, Geojit Investments said that the big uncertainty surrounding the West Asia conflict and the consequent gyrations in crude prices had an impact on FPI flows also. FPIs turned buyers on three days in the third week of April on the strengthening of the rupee and news of a decline in crude prices. But soon this trend was reversed in the fourth week when FPIs turned sellers again.
“An important trend in FPI activity is that they have been buying selectively in many mid and small caps even while selling in large caps across sectors. The global trend of buying in AI stocks, which was dominant last year is continuing this year too. Consequently, markets like Japan, South Korea and Taiwan are attracting huge inflows. This was evident in April FPI activity too,” added Vijayakumar.
Pabitro Mukherjee, Associate Vice President – Research Bajaj Brokin said that looking ahead, institutional activity is expected to be driven mainly by global news flows, with developments in US–Iran negotiations remaining a key monitorable due to their potential impact on geopolitical stability and global energy markets. US FOMC and Bank of Japan rate decision followed by central bank commentary, are also scheduled for next week which will also have an impact on the global equity market and institutional activity, added Mukherjee.
ArunaGiri said that for a meaningful revival in FII inflows, two key triggers are essential: a clear earnings acceleration cycle which is a while away and supportive currency trends. “Until these factors align, expecting a sharp return of FII flows may be optimistic. The year 2026, therefore, becomes an important one to watch out for. The interplay between earnings visibility, currency stability, and sectoral leadership will determine whether FIIs will relook at Indian markets in a meaningful way,” he added.