This continued selling pressure by foreign portfolio investors (FPIs) has contributed significantly to the depreciation of the rupee against the dollar by almost 5 percent by 2025.However, market experts believe the tide could turn in 2026.
VK Vijayakumar, Chief Investment Strategist at Geojit Investments, said this year is likely to witness a shift in FPI strategy as improving domestic fundamentals may start attracting net foreign inflows.
Robust GDP growth and prospects of a recovery in corporate earnings bode well for positive FPI flows in the coming months, he added.
Vaqarjaved Khan, Senior Fundamental Analyst at Angel One, said the normalization of trade ties between India and the US, a favorable global interest rate environment and stability in the USD/INR pair could create a favorable environment for foreign investors. He noted that equity valuations have become relatively comforting compared to last year, which could further support a rebound in inflows.
Despite these positive expectations, FPIs have started 2026 on a cautious note and, according to NSDL data, pulled out nearly Rs 7,608 crore from Indian equities between January 1 and 2.
The trend is not unusual as foreign investors have historically remained wary in January after withdrawing money in eight of the past 10 years, Khan said.
Consequently, FPI flows are likely to remain highly sensitive to global signals and macroeconomic developments. While high valuations have been a major concern over the past year, that pressure appears to have eased for now, leaving room for optimism going forward, he added.
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