Foreign Institutional Investors (FIIs) have been on a historic selling spree, pulling out approximately $18.4 billion from Indian equities in the calendar year 2025 alone. As of early February 2026, the trend has persisted, with the first 10 months of FY26 (April 2025–January 2026) marked by heavy outflows that have tested the resilience of the domestic market.
1. The Magnitude of the Exit
The scale of FII selling in 2025 and early 2026 is unprecedented in the history of Indian capital markets.
- Secondary Market Drain: FIIs offloaded a record ₹2.40 lakh crore in the secondary market during 2025.
- FY26 Record: In the first 10 months of the current fiscal, net outflows have frequently touched multibillion-dollar marks monthly, including a ₹36,591 crore exit in the first three weeks of January 2026 alone.
- 13-Year Low: Foreign holding in Nifty 50 stocks has slipped to a 13-year low of 24.1%, as global funds pivot toward more “AI-centric” or cheaper emerging markets.
2. Why Are FIIs Selling?
Analysts point to a “perfect storm” of global and domestic factors driving the withdrawal:
- Valuation Concerns: Despite market corrections, Indian equities remain expensive compared to other Emerging Markets (EMs). The price-to-earnings (P/E) ratio for many large and mid-caps is still well above historical averages.
- Rupee Depreciation: The Indian Rupee hit record lows (crossing ₹91/$ in late 2025), which significantly eats into the “dollar-denominated” returns for foreign investors.
- The “China Stimulus” & Global Pivot: China’s aggressive 2025 economic stimulus led to a tactical shift of capital back to Beijing. Simultaneously, capital has flowed toward the US and South Korea, where AI and semiconductor themes are more dominant.
- Budget 2026 Disappointment: The recent Union Budget 2026 spooked foreign investors by increasing the Securities Transaction Tax (STT) on F&O trades and failing to provide relief on Long-Term Capital Gains (LTCG) for FPIs.
3. DIIs: The Domestic Shield
While FIIs have been persistent sellers, the Indian market has not crashed as hard as historical data would suggest, thanks to the massive counter-buying by Domestic Institutional Investors (DIIs).
- Mutual Fund Surge: SIP (Systematic Investment Plan) inflows hit a record ₹31,000 crore in December 2025, providing a steady supply of domestic capital.
- Absorbing the Shock: DIIs bought stocks worth over ₹4,222 crore on single days where FIIs sold over ₹2,500 crore, effectively acting as a “shock absorber” for the Sensex and Nifty.
4. Impact on Market Indices
The relentless FII selling has caused significant volatility, particularly in January 2026, which was the worst January for Indian markets in a decade.
| Period | Sensex/Nifty Impact | FII Net Activity |
| Q3 FY26 (Oct-Dec) | Sharp corrections in Financials/IT | Persistent Selling |
| January 2026 | Worst performance in 10 years | ₹36,000 Cr+ Outflow |
| Post-Budget (Feb 1) | 1,800+ point Sensex crash | Impacted by STT hike |
Conclusion: A Structural Shift?
The $16.7 billion+ exit signals that FIIs no longer view India as a “must-own” at any price. They are now playing a “bottom-up” game, selling secondary market stocks but remaining active in large-scale IPOs (like Bharat Coal), where pricing is more favorable. For the retail investor, the message is clear: while foreign money is leaving, the “retailization” of Indian finance is currently strong enough to keep the long-term growth story on its feet.
