Foreign institutional investors have maintained their selling pressure on Indian equities, with ₹2.22 lakh crore in total outflows recorded in 2026 so far. According to Zee News, FIIs have sold shares worth ₹30,374 crore in May alone, marking the third successive month of net selling. On Friday, FIIs sold domestic shares worth ₹4,440.47 crore while domestic institutional investors (DIIs) provided support as net buyers at ₹6,003.53 crore. The benchmark indices managed modest gains with Nifty closing at 23,719.30 (up 64.60 points) and BSE Sensex settling at 75,415.35 (up 231.99 points), though gains were capped amid strong selling pressure in pharma and health stocks.
Early signs are emerging that the global investor rush into artificial intelligence and commodity trades may be losing momentum, according to Elara Capital's latest "Global Liquidity Tracker" report dated May 22. The brokerage noted that global emerging markets witnessed a sixth straight week of outflows, with another $8 billion redeemed this week after a large $24.4 billion outflow over the previous 15 weeks. Foreign investor money had largely shifted towards markets such as South Korea and Taiwan since April 2025 to benefit from the AI trade, while Brazil gained from the commodity rally, often at India's expense. However, Elara reported that South Korea recorded a $1.3 billion outflow three weeks ago followed by another $587 million this week, while Brazil saw its largest redemption since December 2024.
Elara Capital reported that India's foreign fund outflows remained weak overall but showed signs of stabilization. India outflows slowed to $702 million in May from $1.5 billion in April and a historic $3.5 billion in March, according to the brokerage's report. India-focused fund flows had stabilized over the last two weeks after 11 consecutive weeks of outflows totalling nearly $6 billion. The report noted that ETF inflows were helping offset selling pressure in long-only funds, indicating potential recovery in foreign investment sentiment toward Indian markets.
According to Bajaj Broking's Pabitro Mukherjee, investor sentiment remains cautious due to persistent geopolitical tensions, which continued to keep crude oil prices elevated. As reported by The Economic Times, the Indian Rupee further weakened during the week, slipping to a fresh all-time low against the US Dollar. A sharp rise in bond yields, driven by concerns over rising inflation and the possibility of prolonged higher interest rates, kept investors on edge. Looking ahead, institutional flows are likely to remain sensitive to developments around US–Iran tensions and oil-price movement. The ₹2.22 lakh crore outflow in 2026 compares to ₹1.66 lakh crore in 2025, when FIIs remained net sellers throughout the year.
Despite the sustained selling pressure, analysts see potential for recovery based on improving fundamentals. Geojit Investments Chief Investment Strategist Dr VK Vijayakumar noted that "the factors are poor earnings growth in India, much better earnings growth and prospects for earnings growth in other markets, high bond yields, particularly in the US, and rupee depreciation." He emphasized that "these factors, at least some of them, should change in India's favour for the FIIs to turn buyers in India." The recent trend shows FIIs buying small and mid-cap equities (SMIDs) despite selling largecaps, indicating that earnings growth prospects remain the primary factor for foreign investment decisions. Domestic institutional investors (DIIs) remained net buyers throughout the week with ₹16,950 crore in net inflows, providing crucial support to the market.
