FPI Equity Selling Phase May Be Over for India: BoB Report Flags Strong Domestic Fundamentals

FPI Equity Selling Phase May Be Over for India: BoB Report Flags Strong Domestic Fundamentals​

Foreign Portfolio Investor (FPI) selling pressure in Indian equities may be stabilizing, with Bank of Baroda Research suggesting that a sharp decline in foreign equity flows is unlikely in the near term. The research report indicates that while foreign investors have largely been net sellers throughout 2026 amid global uncertainty and geopolitical tensions, the outlook for market sentiment could significantly improve in the coming months.

Shift in FPI Flows and Recovery Signs​

The BoB report clarifies that previous equity outflows were primarily driven by a global risk-off environment following the outbreak of war earlier this year. However, market expectations have begun to gradually shift upwards, leading to a noticeable recovery in foreign investment flows recently.

Crucially, the bank noted positive developments regarding equity performance. In June and July, net equities turned into net inflows. Furthermore, net equity inflows accelerated in July 2026, mirroring a similar strengthening trend observed in February 2026. This turnaround suggests that the worst of the corrective phase may be behind the market.

India's Debt Resilience Offsets Equity Weakness​

While foreign investors pulled money out of Indian equities, as seen across many Asian markets, India demonstrated resilience through its debt segment. The report highlights a contrast: India recorded net equity outflows totaling USD 27.2 billion in calendar year-to-date 2026.

In stark contrast, the country attracted substantial foreign capital into the debt market, attracting USD 8.7 billion. This strong performance in debt inflows is attributed to coordinated fiscal and monetary policy support, along with government measures specifically aimed at tax rationalisation for foreign portfolio investors (FPIs).

Domestic Growth Underpins Future Outlook​

Looking forward, Bank of Baroda Research anticipates that India's robust domestic growth story will be a critical pillar supporting a recovery in foreign investor sentiment. The bank maintains that since some downward correction has already occurred within the equity segment, there is limited scope for any further sharp declines going forward.

The stability is supported by favorable interest rate differential between India and the United States. This macroeconomic strength is expected to continue bolstering foreign investment, especially within the debt market, even if global conditions remain uncertain.

Navigating Geopolitical Volatility​

Despite the positive domestic indicators, the report cautions that global FPI flows are likely to maintain volatility in the near future. Global central bank actions and tighter liquidity conditions worldwide might still impinge on equity inflows.

However, the research maintains that the market has sufficiently priced into these potential risks. Therefore, any downward correction is expected to be largely capped, as domestic fundamentals provide a strong underlying cushion. This suggests caution should be balanced with confidence in India's growth trajectory.