Record FII Outflows of ₹1.6 Lakh Crore in FY26 Countered by Strong Domestic Inflows

Record FII Outflows of ₹1.6 Lakh Crore in FY26 Countered by Strong Domestic Inflows​

Foreign institutional investors (FIIs) withdrew more than ₹1.6 lakh crore from Indian equities in FY26, marking the highest annual outflow on record. Despite this, domestic institutional investors (DIIs) infused ₹8.49 lakh crore into the market, providing a strong counterbalance to the sustained foreign selling.

Domestic Investors Provide Strong Support​

Domestic inflows, led by mutual funds, pension funds, and insurance companies, remained robust throughout the financial year. The total investment of ₹8.49 lakh crore in FY26 exceeded the combined equity inflows of the previous two financial years, highlighting consistent participation from local investors.

Retail investors continued to contribute steadily through systematic investment plans, with average monthly inflows of ₹29,000 crore into domestic equity schemes.

Global Factors Drive Foreign Investor Exit​

Foreign investors reduced exposure to Indian equities amid multiple global and domestic factors. These included the Iran conflict, uncertainty around tariffs, relatively expensive valuations, an AI-led decline in the business prospects of a $280 billion technology industry, and a nearly 10 percent depreciation in the rupee against the US dollar.

The pace of outflows accelerated in March following the start of the West Asia conflict, during which the rupee declined by about 4 percent in a few weeks.

FY26 marks the second consecutive year of FII outflows and the fourth instance in the last five years. In FY25, FIIs had withdrawn ₹1.24 lakh crore from Indian equities.

Benchmark Indices End Lower​

Indian equity benchmarks closed FY26 in negative territory. The Nifty declined 5.1 percent, while the Sensex fell 7.1 percent over the financial year.

Both indices saw a sharp decline of nearly 9.5 percent in March, making it the worst monthly fall since 2020.

Currency and Valuations in Focus​

The rupee recorded a significant decline during the year, including a 4 percent fall in March alone. Weak currency levels affected returns for foreign investors.

At the same time, foreign institutional ownership in Indian companies dropped to a decadal low. Market valuations stood at around 17 times the estimated price-to-earnings ratio, which is below the ten-year average.