Despite weak results this year, market participants expect the trend to reverse in 2026.”We expect India’s FPIs to rebound sustainably as nominal growth and earnings pick up in CY26. Closing the trade deal with the US should narrow rate differentials, while Fed rate cuts will keep the dollar soft, favoring emerging market assets,” said Garima Kapoor, deputy head of research and economist at Elara Securities India.
In addition to global tailwinds, domestic factors are also expected to play a role in reviving capital flows. India’s earnings growth relative to peers, policy continuity and reforms, especially around the Union Budget, could act as key triggers, said Vikas Gupta, CEO and chief investment strategist at OmniScience Capital.
At the same time, uncertainty on the global macro front will continue to shape FPI behavior.
“The trajectory of global interest rates, especially the timing and pace of rate cuts, along with rate developments, will be key drivers,” said Himanshu Srivastava, principal research manager at Morningstar Investment Research India, adding that a moderation in US bond yields and a softer dollar could further support a revival in equity inflows. 59,000 crore in the debt market (till December 26) as per data available with the depositories.
This makes 2025 the worst year for equity flows. It surpasses the previous record outflow of Rs 1.21 lakh crore in 2022 and comes after marginal net inflows of just Rs 427 crore in 2024. In contrast, 2023 saw robust equity investment of Rs 1.71 lakh crore.
In explaining the drivers, analysts point to a mix of global and local pressures.
“Sustained high US yields and high bond yields improved risk-free returns in developed markets, leading to capital rotation and strengthening of the dollar, tightening financial conditions for emerging markets,” Srivastava said.
Phases of rupee depreciation have further eroded dollar-based returns and raised hedging costs, dampening India’s risk-adjusted appeal. These pressures were exacerbated by geopolitical uncertainty, as concerns over energy prices, supply chain disruptions and trade-related tensions periodically weighed on sentiment, he added.
On the domestic front, higher valuations in certain segments led to tactical profit-taking, said Sorbh Gupta, head of equities at Bajaj Finserv Asset Management. He added that these were short-term adjustments and not a reassessment of India’s long-term growth story.
The monthly flow pattern reflects this volatility. FPIs sold shares in eight of the 12 months of 2025, with purchases limited to April, May, June and October.
The sell-off in shares by FPIs was met by strong buying from domestic institutional investors, supported by rising SIP (Systematic Investment Plan) inflows from retail investors.
Unlike equities, FPIs showed a clear preference for debt and invested a net Rs 59,000 crore in Indian debt by 2025, driven by India’s inclusion in global bond indices, attractive yield differentials and portfolio rebalancing amid volatile equity markets.
The phased inclusion of Indian government bonds under the Fully Accessible Route (FAR) in indices such as the JP Morgan Global Emerging Markets Index has seen steady demand from passive funds, Morningstar’s Srivastava said.
According to OmniScience Capital’s Gupta, FPIs have likely made gains in the equity markets and diverted some of them FAR into debt to maintain relatively higher interest rates on Indian debt.
“It is clear that we are in for a rate cut cycle and Debt FAR offers the opportunity to lock in higher interest rates with a benefit of capital gains when the cuts occur,” he added.
Sectoral trends reflected these shifts, with financials and IT seeing the largest outflows amid US growth concerns, a weak capex cycle and pressure on net interest margins, while healthcare, utilities and manufacturing attracted inflows on long-term themes such as infrastructure buildout and the PLI-led industrial push.
Overall, FPIs started 2025 on a weak footing, withdrawing over Rs 78,000 crore in January due to rupee depreciation, rise in US bond yields and expectations of a tepid earning season. This sell-off lasted till March and cost Rs 1.16 lakh crore in the first three months of the year, amid the escalation in global trade tensions.
Although they returned with net investments of Rs 38,600 crore between April and June, the recovery was short-lived with sales resuming from July to September. After a brief comeback in October with a net investment of Rs 14,610 crore, FPIs again became net sellers in November and December amid weak global cues.
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