FPIs sell $1.6 billion of Indian stocks in five trading sessions

Mumbai: After buying nearly $6.85 billion worth of Indian equities between mid-June and late-August, foreign portfolio investors (FPI) have turned sellers again, offloading nearly $1.6 billion of local stock in five of the past six trading sessions. The reversal comes after crude oil prices spiked nearly a third from recent lows and global bond yields hardened close to levels last seen during the peak of the subprime crisis, diminishing global appetite for growth assets in emerging markets vulnerable to energy import risks.

"There are three main reasons driving the recent selling. The rebound in crude prices is raising concerns over India's inflation, current account deficit and the rupee," said Pratik Gupta, chief executive and co-head, Kotak Institutional Equities. "Rising US and global bond yields, along with a stronger dollar, are reducing risk appetite for emerging markets." Profit booking after a two-month rally and a visible rebound in allocations by global funds toward AI-themed stocks have also dimmed the allure of Indian equities, Gupta said.

Significant for India

"Investors are booking profits after the two-month buying streak, particularly given India's still-elevated valuations relative to many peers, while there is also a broader rotation of global capital toward AI and technology themes in the US, Taiwan and South Korea," he said.

The recent hardening in crude oil prices is particularly significant for India, where higher oil costs can raise the import bill, put pressure on the rupee, and stoke inflationary pressures. Since the end of July, crude oil prices have surged around 20%.

Meanwhile, higher global bond yields can make investments in developed markets more attractive and weigh on equity valuations through a higher cost of capital.

If crude oil prices remain close to $100 a barrel and global bond yields continue to harden, market volatility could increase, valuations could face further pressure, and FII selling could continue, making broad-based rallies more difficult.

Selling by overseas funds also coincides with robust activity in India's primary market, which remains an avenue for overseas investors to deploy capital. Upcoming mega IPOs, such as those by NSE and Jio Platforms, are expected to compete for funds with secondary-market investments. "They are starting to sell because AI trade has again started doing well. But they are also selling to make way for large IPOs. They also want to subscribe," said Shiv Sehgal, President & Head, Nuvama Capital Markets.

Domestic flows can cushion the downside, but a sustained oil and yield shock would likely keep near-term returns muted and make the market recovery more dependent on earnings delivery and any easing in global factors, experts said.

FPI selling is likely to remain episodic and sensitive to the movement in oil prices and global yields rather than turn into a one-way outflow of the intensity seen between March and June 2026. However, further net selling is possible in the near term if these pressures persist.

Read more: Foreign investors turn sellers in government bonds after two months of strong buying

"Investors should keep an eye on FII selling to see if it continues, and if crude oil, the Indian Rupee, and global bond yields remain high. A few sessions of selling alone should not be treated as a panic signal, but prolonged outflows could keep large-cap stocks and the broader market volatile," said Ravi Singh, Chief Research Officer, Master Capital Services.

Large-cap stocks have been battered by FPI selling so far this year, even as domestic institutional investors have continued to support the market through steady purchases.