Foreign portfolio investors (FPIs) are likely to continue pulling money out of India as long as the global artificial intelligence (AI) trade sustains its momentum, analysts warned on Sunday, 3 May 2026. The trend has seen capital shift sharply toward Japan, South Korea, and Taiwan, which are drawing significant inflows, while India and several other emerging markets grapple with headwinds from energy price pressures and currency depreciation.

The AI Trade Driving Capital Away from India

A defining feature of FPI flows in 2026 has been the concentration of inflows into markets with direct exposure to the AI supply chain. Dr VK Vijayakumar, Chief Investment Strategist at Geojit Investments Limited, identified the AI trade as the central driver of this capital reallocation. "An important factor driving capital flows is the AI trade, particularly in South Korea and Taiwan," he said.

Three companies are capturing the lion's share of these inflows: Samsung and SK Hynix in South Korea, and TSMC in Taiwan. According to Vijayakumar, the strong fundamentals backing these stocks — reflected in their recent quarterly results — are providing the bedrock for sustained FPI interest in those markets. "The excellent results being posted by these companies are providing the fundamental support to the FPI flows into these markets. So long as the AI trade continues, the trend of FPI outflows from India is likely to continue. However, there are concerns of overvaluations in AI stocks," he added.

Scale of FPI Outflows from India in 2026

The numbers underscore the severity of the outflow trend. During April 2026, FPIs were net sellers in Indian equity markets to the tune of ₹63,167 crore. They did invest ₹2,319 crore through the primary market during the same period, bringing net FPI outflows for the month to ₹60,848 crore. Cumulatively, total FPI outflows from India in 2026 so far stand at ₹1,91,968 crore, according to available data. Foreign institutional investors (FIIs) remained net sellers for the 10th consecutive month in April — a streak that signals structural, not merely tactical, repositioning.

DIIs Step In to Cushion the Market

Domestic institutional investors (DIIs) have emerged as a critical buffer against deeper market declines. In April, DIIs were net buyers with investments totalling ₹51,000 crore, absorbing a significant portion of the selling pressure that FPI exits have generated. This DII support has helped limit sharper corrections in Indian equity benchmarks, even as FPI outflows persist. Notably, this pattern — DIIs countering FPI exits — has been a recurring feature of the Indian market over the past year.

Crude Oil Surge Adds to Market Headwinds

Compounding the FPI-driven pressure, crude oil prices surged last week following confirmation from the White House that President Donald Trump had directed officials to prepare for a prolonged blockade of Iranian ports. Higher crude prices are a double-edged concern for India — widening the current account deficit and stoking inflation — making the market less attractive to foreign investors already pivoting toward AI-linked economies. Indian equity benchmarks closed in the red last week, weighed by persistent FII selling and elevated crude prices.

What to Watch in the Week Ahead

Analysts expect institutional activity to be primarily shaped by global news developments in the near term. The outcome of a state assembly election on Monday is also expected to influence market sentiment in the coming week. The broader question, however, remains whether the AI trade's momentum — and its attendant overvaluation risks — will sustain or correct, a development that could meaningfully alter the FPI flow calculus for India.