Amid shift of global capital towards artificial intelligence (AI)-linked developments and a weak rupee, foreign investors pulled out over Rs 43,000 crore in the first week of June.
Notably, National Securities Depository Ltd data has revealed that with this, total outflows by Foreign Portfolio Investors (FPIs) from Indian equities have reached Rs 2.67 lakh crore so far in 2026, surpassing the Rs 1.66 lakh crore withdrawn during entire financial year of 2025.
Market experts said FPIs have been reducing their exposure to Indian equities due to a combination of weak earnings growth, rupee depreciation and the emergence of more attractive investment opportunities in global markets, particularly in the technology and AI space.
"Apart from higher US yields and dollar strength, global investors are also reallocating capital towards some of the largest technology and AI-related public market opportunities currently emerging globally. The upcoming SpaceX IPO, along with anticipated capital market activity around leading AI companies, is attracting significant global liquidity, leading to temporary capital rotation away from emerging markets, including India," Alpha AMC Founder Rajesh Singla said.
According to the data, FPIs were net sellers in all months of 2026 except February. They pulled out Rs 35,962 crore in January before turning net buyers in February, when they invested Rs 22,615 crore, the highest monthly inflow in 17 months.
However, the trend reversed sharply in March, when foreign investors withdrew a record Rs 1.17 lakh crore. The selling continued in April with net outflows of Rs 60,847 crore and in May with withdrawals of Rs 32,963 crore.
The exodus persisted in June, with FPIs pulling out Rs 42,927 crore during the first week of the month. Market experts said that persistent depreciation of the rupee has emerged as another key factor behind the sustained outflows.
The Indian currency has weakened nearly 6 per cent so far in 2026 and around 10 per cent over the past year, falling from the mid-80s to about 95.5 against the US dollar despite efforts by the Reserve Bank of India (RBI) to stabilise the currency.
Given the importance of foreign portfolio flows in financing the current account deficit and supporting the balance of payments, policymakers have announced a series of measures aimed at attracting overseas capital.
Geojit Investments Chief Investment Strategist V K Vijayakumar said the government's decision to exempt interest and capital gains arising from FPI investments in government securities from taxation, along with recent RBI measures, could support fresh foreign inflows.
These measures include the central bank absorbing hedging costs on FCNR deposits mobilised by commercial banks, expanding the forex swap window, increasing access to government bonds through the Fully Accessible Route (FAR), and raising investment limits for non-resident Indians (NRIs) and overseas citizens of India (OCIs) in Indian equities.
However, Vijayakumar said a sustained revival in FPI inflows would depend on a moderation in the global AI-driven investment theme, which has been drawing capital away from emerging markets, including India.
"There are early signs of this happening. The sharp decline in the Nasdaq on June 5 indicates that the AI trade may be losing momentum. If the AI-driven rally cools and reverses, it could trigger a reversal in FPI outflows from India," he added.
In the country, FPIs invested over Rs 2,600 crore in debt through the Fully Accessible Route in the first week of June, taking the total to Rs 17,230 crore in this year so far.
With inputs from PTI
