Foreign portfolio investors have sold Indian equities worth over ₹1.8 lakh crore in 2026 so far, surpassing the total outflows for all of 2025, as reported by The Economic Times. This selling represents the most significant outflow by overseas investors in the first four months of any calendar year, with the unabated exodus an extension of selling since September 2024 when sentiment on India turned sour after corporate earnings growth failed to match rich share valuations. According to Sriram Velayudhan, senior vice president at IIFL Capital Services, foreign outflows were driven by a host of factors including weak rupee and deceleration in earnings momentum. The West Asia conflict that began February 28 revived the flight to safety, with foreign investors stepping up selling amid the record fall in the rupee and worries about the impact of higher oil prices on the currency.
Mutual funds increased their stakes in new-age companies during the March quarter, despite falling share prices and overall portfolio value declines. According to reports from The Economic Times, this move by domestic institutional investors comes as foreign investors divest Indian equities due to global macroeconomic headwinds and heightened geopolitical uncertainties. The higher exposure by domestic institutional investors (DIIs) reflects confidence in listed peers' long-term business models and execution capabilities, with falling share prices of new-age companies in the quarter pushing mutual funds to step up buying and raise their shareholding even as overall portfolio values declined. As Hari Shyamsunder, VP and senior client portfolio manager at Franklin Templeton, noted, the thesis changed quickly in March as global investors sold shares worth around $12 billion in India.
In the case of Eternal, the parent of Zomato and Blinkit, mutual fund ownership increased to 30.3% as of March 31 from 28.3% at the end of December 2025. However, the value of these holdings fell 11% to ₹63,889 crore, tracking a 17% drop in the company's stock price during the quarter. A similar trend was visible at PB Fintech, the parent of Policybazaar, where mutual fund ownership rose to nearly 28% from about 20% in the previous quarter, even as the share price declined 22%. For payments company Paytm, mutual fund ownership increased to 16.6% as of March 31 from 14.3% three months earlier, while Meesho's stock fell 22% during the quarter after reporting higher losses, but domestic funds raised their exposure to 4.9% from 4.5%.
The renewed selloff in March struck not just India but also global AI favourites such as Taiwan and South Korea, with the intensity of selling across Asian markets leading to South Korea displacing India as the most sold market in the region in 2026 with outflows at $35.3 billion. India was next at $19.75 billion followed by Taiwan at $8.50 billion, according to Bloomberg data. As Shyamsunder noted, selling abated in Taiwan and South Korea in April but India is yet to see renewed inflows in the absence of the AI theme. Several companies that listed during the late 2025 initial public offering boom, including Groww, Pine Labs, Capillary Technologies, Physics Wallah, Wakefit and Meesho, have seen mutual funds build positions, with bankers and investors noting that the decline in share prices could influence rivals' IPO plans.
Within the listed cohort, mutual fund holdings declined in companies facing operational or performance challenges, including electric two-wheeler maker Ola Electric and coworking firm Awfis, both of which have underperformed analyst expectations. According to The Economic Times, Gaurav Sood, managing director and head of equity capital markets at Avendus Capital, noted that companies listed since the first wave of new-age IPOs in FY22 have seen an average 2.5-3x rise in DII holdings, driven by greater familiarity and increased research coverage. "With recent listings continuing to deliver on their numbers quarter after quarter, mutual funds have gained confidence that IPO narratives around growth and profitability are playing out. This is leading to sustained, long-term allocations rather than tactical positioning," Sood added. He emphasized that higher allocations to listed incumbents do not necessarily crowd out IPO demand, as mutual funds are willing to back multiple players within a category provided execution remains strong.
