Robust GDP growth and expectations of enhanced corporate earnings in the upcoming year are anticipated to attract positive foreign institutional investor (FII) flows in 2026. Despite a significant sell-off exceeding Rs 22,130 crore in December, analysts foresee a potential reversal in FII outflows due to strong macroeconomic indicators and improved earnings visibility.
Dr. VK Vijayakumar, Chief Investment Strategist at Geojit Investments Ltd., highlighted that FII selling in India is on course to reach a new record in outflows as 2025 concludes. In the previous year, FIIs sold equities worth Rs 1,21,210 crore through exchanges, yet the net FII inflow remained positive at Rs 1,21,637 crore due to investments in the primary market. However, the net sales figure for 2025 is notably substantial.
The sustained FII selling has played a significant role in the considerable depreciation of the Indian rupee this year. Analysts believe that an improvement in fundamentals is likely to attract net FII inflows in 2026, counterbalancing the impact of high trade deficits and sustained FII selling that contributed to the rupee’s depreciation in 2025.
The Indian rupee experienced an annual depreciation of approximately 5% and witnessed a slight decline on Friday amidst a recovery in crude oil prices. Additionally, official data revealed that net foreign direct investment (FDI) in India nearly doubled to $6.2 billion during April‑October compared to $3.3 billion in the previous year, primarily attributed to reduced repatriation of foreign capital despite an increase in outward FDI.
A recent report from Emkay Global Financial Services suggested that the rupee’s weakness might deter foreign portfolio investors (FPIs), with a potential return expected only after the currency stabilizes for an extended period of 1-2 months. The report also highlighted that FPIs maintain a significant focus on large-cap stocks, particularly in the Financials sector.
