Foreign portfolio investors made their biggest-ever annual exit from Indian markets in FY26, pulling out a record ₹1.53 lakh crore from equities and debt amid global uncertainty, according to SEBI's annual report. The report showed FPI investment "turned sharply negative" during 2025-26, recording total net outflows of ₹1,52,692 crore, the highest annual outflow in any financial year on record. This marked a sharp reversal from the record inflow of ₹3,39,066 crore in FY24 and the modest inflow of ₹20,018 crore in FY25. However, SEBI noted that the withdrawals were relatively modest when viewed against the overall size of foreign investor holdings, with the flow-to-AUC ratio standing at only 2.1%, indicating the scale of withdrawal was moderate compared to existing FPI asset base.
Foreign investors remained persistent sellers in Indian equities throughout FY26, with net equity outflows of ₹1,80,832 crore, more than 40% higher than the previous year's equity outflows. According to SEBI's annual report, selling intensified towards the end of the financial year, with March 2026 alone accounting for nearly ₹1.17 lakh crore of equity outflows. The April-June 2025 quarter was the only period during the year that recorded net FPI buying in equities, supported by RBI rate cuts and an improvement in global sentiment. Equity outflows were driven by US tariff-related uncertainties, geopolitical tensions in West Asia, subdued corporate earnings due to higher input costs, and uncertainty over medium- to long-term inflation projections.
In contrast to equity performance, the debt market continued to attract foreign money, with net inflows of ₹25,807 crore, led primarily by investments through the Fully Accessible Route (FAR) and the General Limit route. SEBI attributed this resilience to continued investor interest in Indian fixed income, supported by residual passive flows linked to India's inclusion in the JP Morgan bond index. The report noted that this contrasted sharply with the equity outflows, highlighting the selective nature of foreign investor behavior during the challenging period.
Despite the broader risk-off environment, FPIs selectively increased exposure to sectors such as capital goods (₹25,923 crore), telecom (₹24,746 crore), and metals & mining (₹20,305 crore). On the other hand, information technology recorded the highest net outflows of ₹81,239 crore, followed by financial services (₹58,066 crore), FMCG (₹33,728 crore), and healthcare (₹30,351 crore). The report said this reflected sectoral rebalancing amid evolving global growth expectations, valuation considerations and changing risk sentiment, with investors moving away from technology and financial services towards sectors offering better growth prospects.
SEBI also noted that the number of registered FPIs rose to 12,199 as of March 31, 2026, an increase of 333 entities over the previous year. The United States remained the largest source of foreign portfolio assets, accounting for 40.7% of total assets under custody, while Ireland and France were the only two among the top ten jurisdictions to register an increase in assets during the year. Looking ahead, the report expects India's domestic growth story to support a recovery in foreign investor sentiment, with Bank of Baroda Research noting that 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.
