FPI selloff isn’t a verdict, it’s a rotation: Foreign ownership of Indian equities slid to a 15-year low in 2025, but the selloff needs to be seen in the context of global capital cycles rather than any fundamental weakening in India, Vaqarjaved Khan, senior analyst at Angel One, told EnterpriseAM.

Crunching the numbers: Foreign Portfolio Investors (FPI) pulled out some INR 1.4 tn (USD 16.4 bn) from Indian equities in 2025, as per NSE’s latest Market Pulse Report. Meanwhile, domestic institutional investors (DIIs) pumped in more than INR 7 tn (USD 81.5 bn) in the same period.

Domestic capital has cushioned the impact, offsetting the FPI exits since 2022. Despite periodic risk-off pressure, India is relatively better placed due to its domestic demand orientation, policy stability and growth visibility.

What’s behind the selloff? Higher global interest rates, especially elevated US bond yields, and a strong USD have tilted global portfolios back toward developed markets, causing sustained FPI selloffs from emerging markets, Khan says. India’s sharp equity outperformance in recent years compounded the move, stirring valuation concerns in certain sectors and triggering outflows, particularly from export-oriented and cyclical sectors such as IT and energy.

Global investors are selectively rotating away from emerging-market equities, Khan explains, limiting their exposure to fiscally weaker, externally vulnerable, and commodity-dependent economies rather than exiting the asset class wholesale.

Volatility in FPI flows is expected to persist into early 2026, Khan observes, noting a medium-term supportive environment for a gradual return of investors, as global rates peak before they begin to ease and Indian earnings broaden.

Who gains? Large-cap stocks with strong balance sheets and predictable cashflows are likely to be the first beneficiaries, he adds. Any meaningful valuation corrections or periods of market consolidation could further improve the risk-reward ratio for foreign investors.

Gulf capital plays the long game in India

Gulf investor offices are highly likely to increase their India allocations in 2026 due to the Gulf’s ample liquidity and a strategic diversification away from hydrocarbons, as India offers a compelling momentum of scale, growth, and policy continuity, Khan said.

Gulf investors are showing up with patience, approaching India as a “strategic, long-duration growth market rather than a tactical trading [play],” Khan said, pointing to their sustained interest in infrastructure, financial services, energy transition, and consumption, and that they are less prone to being rattled by short-term market volatility. This is reflected in the recent deployments of the Abu Dhabi Investment Authority, which has been active in recent Indian IPOs and long-term themes.

Financials remain the core wager of the FPI portfolio over the last five years, accounting for roughly 34.2% — reinforcing global interest in the sector including from the Gulf investors. Meanwhile, FPI interest in the consumer sector has nearly doubled, rising from 7.3% to 12.7% in five years.

What’s changing? Global investors increasingly view India’s long-term growth being driven by domestic engines rather than export-led cycles alone, according to Khan. FPI allocation mirrors this structural shift — drifting away from globally cyclical sectors and valuation-sensitive sectors like IT and energy to domestic themes such as industrials, consumption, and utilities.

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