Foreign portfolio investors pulled ₹7,443 crore from Indian equities in the first week of September, reversing two months of buying. Higher crude prices, rising US bond yields, a stronger dollar and India’s relatively high valuations are making global investors more cautious.
FPIs return to selling after two months of buying
Foreign portfolio investors, or FPIs, turned net sellers in Indian equities during the first week of September 2026, withdrawing ₹7,443 crore through September 4, according to NSDL data reported by multiple Indian financial news outlets. The selling comes after foreign investors had bought Indian equities for two consecutive months.
FPIs had invested around ₹20,200 crore in Indian equities in July and ₹30,919 crore in August. Before that, they had remained net sellers for four consecutive months from March through June.
The latest withdrawal therefore does not necessarily signal a complete reversal in foreign investor sentiment towards India. Instead, it shows that global investors are becoming more selective as several external factors have changed at the same time.
The cumulative picture, however, remains significant. With the latest September outflow, foreign investors’ net withdrawal from Indian equities in 2026 has reached about ₹2.32 lakh crore, already exceeding the ₹1.66 lakh crore withdrawn during the whole of 2025.
Why crude oil prices are worrying foreign investors
One of the biggest factors behind the latest FPI selling is the rebound in crude oil prices.
For India, crude oil prices matter because the country imports a large share of its crude requirements. When international oil prices rise, the import bill can increase, potentially putting pressure on the current account balance and inflation.
Rajkumar Rathi, Chief Investment Officer at YES Securities, said the recent FPI selling was driven partly by the rebound in crude prices and the resulting concerns around India’s inflation and current account outlook.
Higher oil prices can also affect corporate profitability. Companies that rely heavily on fuel, transportation or petroleum-based inputs can face higher operating costs if those increases cannot be passed on to customers.
For foreign investors, the combination of higher oil prices and expensive equity valuations can make risk-reward calculations less attractive.
US bond yields and stronger dollar add pressure
The second major factor is the global bond market.
When US Treasury yields rise, dollar-denominated fixed-income assets can become more attractive relative to riskier emerging-market assets. Investors may therefore reassess allocations to countries such as India, particularly when the return premium does not sufficiently compensate for currency and market risks.
A stronger US dollar can add another layer of pressure.
Rajkumar Rathi noted that stronger US bond yields and a firm dollar index have reduced foreign risk appetite for emerging markets.
This does not mean investors are abandoning emerging markets altogether. Rather, global portfolio managers may shift money between countries, asset classes and sectors depending on expected returns and risk.
India is particularly sensitive to these global moves because foreign investors hold substantial positions in its listed companies and their buying or selling can influence market liquidity.
India’s high valuations are another concern
Valuation is another reason foreign investors may be booking profits.
Indian equities have traded at relatively high valuations compared with several other emerging markets. When valuations are elevated, investors may become less willing to pay higher prices unless earnings growth can justify those valuations.
Rathi also pointed to premium valuations in Indian growth sectors, particularly in the mid-cap and small-cap segments, as a factor encouraging foreign funds to book profits and rebalance their portfolios.
This is important because the recent Indian market rally has not been restricted to large companies.
The Nifty Midcap 100 and Nifty Smallcap 100 have recorded stronger gains than the benchmark indices during FY27 so far, increasing the valuations of several companies outside the traditional large-cap universe.
For foreign investors, such sharp moves can create an opportunity to lock in gains and move capital towards markets or assets offering a better risk-return balance.
Domestic investors are cushioning the FPI selling
The impact of foreign selling is being partly offset by domestic institutional investors.
On September 4, foreign institutional investors sold Indian equities worth ₹3,111.94 crore, according to exchange data reported by Moneycontrol. Domestic institutional investors, meanwhile, bought equities worth ₹8,930.12 crore on the same day.
DIIs include domestic mutual funds, insurance companies and other Indian financial institutions.
Their growing importance has changed the way foreign flows affect the Indian market. Large FPI outflows can still create volatility, but domestic institutional buying can provide liquidity and reduce the dependence of the market on overseas capital.
The Economic Survey has also highlighted the role of domestic institutional investors as a stabilising force against volatility caused by changing foreign capital flows.
This shift is particularly important for India because domestic savings are increasingly finding their way into financial markets through mutual funds, systematic investment plans and insurance products.
September selling does not erase July and August inflows
It is also important to put the latest ₹7,443 crore withdrawal into context.
FPIs had invested ₹20,200 crore in July and ₹30,919 crore in August, meaning foreign investors had brought more than ₹51,000 crore into Indian equities across those two months before September’s selling began.
The September outflow therefore represents a change in the immediate direction of flows rather than evidence that all foreign investors have lost interest in India.
The distinction matters because FPI activity can change quickly in response to global bond yields, currency movements, commodity prices and geopolitical developments.
Foreign investors may sell some secondary-market holdings while continuing to participate in India’s primary market, where companies raise money through initial public offerings and other share sales.
That distinction is already visible in the current market environment.
IPO market continues to attract foreign capital
Despite selling in listed equities, foreign investor interest in India’s primary market remains comparatively resilient.
Rajkumar Rathi said the upcoming IPO pipeline could continue to act as a channel for foreign capital, particularly when new issues are priced attractively.
India’s IPO market remains active in September, with several companies preparing to raise capital. Business Standard’s IPO tracker showed an extensive pipeline of mainboard and SME offerings, while 11 companies were reported to be preparing to raise around ₹7,055 crore in one week.
This creates an interesting contrast.
A foreign fund may reduce exposure to an existing listed company while simultaneously investing in a new issue if it believes the IPO offers stronger growth prospects or a more attractive valuation.
Therefore, FPI selling in the secondary market should not automatically be interpreted as a broad withdrawal of foreign capital from India.
Global events will remain important for FPI flows
Foreign investment decisions are also being shaped by developments outside India.
Market analysts are closely watching developments in West Asia, crude oil prices and upcoming US inflation data. These factors could influence expectations around global interest rates and the direction of international capital flows.
The US Federal Reserve’s upcoming policy meeting is another major event for global investors.
If US inflation remains elevated, expectations around interest rates could shift. Higher-for-longer US rates can support the dollar and make emerging-market assets relatively less attractive.
On the other hand, softer inflation and expectations of easier monetary policy could improve risk appetite for emerging markets, including India.
That makes September a particularly important month for global portfolio positioning.
What FPI selling means for Indian investors
For domestic investors, FPI outflows are an important market indicator but should not be viewed in isolation.
Foreign investors can move large amounts of capital quickly, so their activity can contribute to short-term volatility in the Sensex and Nifty. However, stock prices ultimately depend on a combination of earnings, valuations, economic growth, liquidity and investor expectations.
Domestic institutional buying is currently providing an important counterweight.
On September 4, DIIs bought ₹8,930 crore against FII selling of ₹3,112 crore. Moneycontrol also reported that DIIs had extended their buying streak to 19 consecutive sessions by September 4.
This suggests that India’s market liquidity is becoming less dependent on foreign investors than it was in earlier periods.
For retail investors, the key lesson is that FPI selling does not automatically mean that the Indian market is headed for a prolonged decline. It is better understood as one indicator of global risk appetite.
What to watch in the coming weeks
The direction of FPI flows will depend on several variables.
Crude oil prices will remain important because a sustained increase could create concerns over inflation and India’s external balance. US bond yields and the dollar will also influence the attractiveness of emerging-market investments.
Investors will additionally watch developments around the US-Iran situation, upcoming US inflation data and the Federal Reserve’s September policy decision.
Domestic factors will matter as well. Corporate earnings, economic growth, liquidity, IPO valuations and domestic institutional flows could determine whether foreign selling has a limited market impact or develops into a longer trend.
For now, the data shows a clear shift in the first week of September. FPIs have resumed selling after two months of buying, but domestic investors are providing substantial support.
The more important question is whether the latest outflow remains a short-term portfolio adjustment or develops into another sustained phase of foreign selling.
Key Takeaways
- FPIs withdrew ₹7,443 crore from Indian equities through September 4, reversing two consecutive months of foreign buying.
- Higher crude prices, US bond yields, a stronger dollar and relatively high Indian equity valuations are among the factors weighing on foreign investor sentiment.
- Domestic institutional investors are cushioning foreign selling, with DIIs buying ₹8,930 crore against FII selling of ₹3,112 crore on September 4.
- India’s primary market continues to attract foreign interest, showing that FPI selling in existing stocks does not necessarily mean a complete withdrawal from Indian assets.
FAQs
How much did FPIs withdraw from Indian stocks in September 2026?
Foreign portfolio investors withdrew ₹7,443 crore from Indian equities in the first week of September, with the NSDL data covering transactions through September 4.
Why are foreign investors selling Indian equities?
The latest selling has been linked to higher crude oil prices, rising US bond yields, a stronger dollar and concerns over relatively high valuations in some Indian growth, mid-cap and small-cap stocks.
Are domestic investors supporting the Indian stock market?
Yes. Domestic institutional investors have been significant buyers. On September 4, DIIs bought ₹8,930.12 crore of Indian equities while FIIs sold ₹3,111.94 crore.
Does FPI selling mean Indian stocks will fall?
Not necessarily. FPI flows can influence short-term market liquidity and sentiment, but stock prices are also determined by corporate earnings, valuations, domestic liquidity, economic conditions and broader investor expectations. Recent DII buying has also provided support to the market.
Leave a comment