Volatile currency movements, concerns over global trade tensions and potential US tariffs, and increased market valuations in 2025 recorded Rs. The withdrawal of funds followed the largest outflow of 1.66 lakh crore (USD 18.9 billion).
This sustained selling pressure by foreign portfolio investors (FPIs) has contributed significantly to the rupee depreciating by around 5 per cent against the dollar through 2025.
However, market experts believe that the tide could turn in 2026.
The year is likely to witness a shift in FPI strategy, as improving domestic fundamentals could attract net foreign inflows, said VK Vijayakumar, chief investment strategist at Geojit Investments.
Strong GDP growth and prospects for recovery in corporate earnings augur well for positive FPI inflows in the coming months, he added.
Echoing similar views, Angel One’s Senior Fundamental Analyst Waqarjaved Khan said normalization in Indo-US trade relations, benign global interest rate environment and stability in the USD-INR pair could create a favorable backdrop for foreign investors.
He noted that equity valuations have become relatively comfortable compared to last year, which could further support the revival in cash flows.
Despite these positive expectations, FPIs have had a cautious start to 2026, and according to data from NSDL, between January 1 and 2, they withdrew nearly Rs. 7,608 crore has been withdrawn.
This trend is not unusual, as foreign investors have historically been cautious in January, and have withdrawn funds in eight of the past ten years, Khan said.
Consequently, FPI flows are likely to remain highly sensitive to global cues and macroeconomic developments. While high valuations were a major concern in the past year, those pressures seem to have eased for now, giving some room for optimism going forward, he added.
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