Worst of FPI equity selling may be over for India: Report

The worst phase of foreign portfolio investor (FPI) selling in Indian equities may be over, with Bank of Baroda Research saying the scope for any sharp decline in foreign equity flows appears limited as domestic economic fundamentals remain strong and investor sentiment improves.

In a report released on Tuesday, the bank stated that although foreign investors have remained net sellers in Indian equities for much of calendar year 2026 amid geopolitical tensions and global uncertainty, the outlook could improve in the coming months.

According to the BoB report, India's equity outflows were largely driven by the global risk-off environment following the outbreak of war earlier this year. However, market expectations have gradually improved, leading to a recovery in foreign investment flows.


The report noted that "In Jun and Jul, net inflows turned into positive territory, which is welcoming. In Jul'26, net equity inflows picked pace, which was the phenomenon last seen in Feb'26."

It also added, "Going forward, global FII flows are likely to be volatile unless the war-situation resolves. Also, tighter liquidity by global central bank actions might further impinge on equity inflows. However, the market has priced in similar situations; hence the downward correction if any, is likely to be largely capped".

Bank of Baroda Research said India mirrored the broader trend seen across several Asian markets, where foreign investors pulled money out of equities. However, India's strong debt inflows helped offset part of the weakness in equity flows.

The report said India recorded net equity outflows of USD 27.2 billion in calendar year-to-date 2026, while attracting USD 8.7 billion into the debt segment.

It attributed the resilience in debt inflows to coordinated fiscal and monetary policy support as well as government measures aimed at tax rationalisation for foreign portfolio investors.

Looking ahead, the report expects India's domestic growth story to support a recovery in foreign investor sentiment.

It said, "For India, we expect that since some downward correction has already happened in the equity segment, there remains less scope for any sharp decline going forward."

While cautioning that global FPI flows are likely to remain volatile due to geopolitical tensions and tighter global liquidity conditions, the report said any further downside correction is expected to remain limited as markets have already priced in much of the uncertainty.

According to Bank of Baroda Research, India's robust domestic growth fundamentals and favourable interest rate differential with the United States are expected to continue supporting foreign investment, particularly in the debt market, even as global conditions remain uncertain.