FPI outflows set to continue as US bond yields, IPO returns lure capital
Synopsis
FPIs have pulled ₹2,95,971 crore from Indian exchanges this year while quietly investing ₹54,398 crore through the IPO route — a split strategy that reveals how high US bond yields are reshaping global capital allocation, with India's secondary market bearing the brunt even as its primary market stays attractive.
Key Takeaways
FPI equity outflows via exchanges reached ₹25,682 crore in the period through 25 August this month.
Cumulative FPI selling through exchanges stands at ₹2,95,971 crore so far this year.
FPIs have invested ₹54,398 crore through the primary market during the same period, with ₹8,551 crore deployed up to 25 September .
Despite large-cap selling, FPIs remain sustained buyers in mid- and small-cap segments.
Sensex fell 0.54% to 73,895.74 and Nifty dropped 0.88% to 23,140.50 , marking the seventh consecutive week of losses.
Elevated US bond yields and geopolitical uncertainty are cited as primary drags on market sentiment.
Foreign Portfolio Investors (FPIs) are expected to sustain their net selling on Indian exchanges, as elevated US bond yields and attractive returns from India's IPO market continue to redirect institutional capital, analysts said on 27 September 2026. The pattern reflects a broader structural shift in how overseas money is engaging with Indian equities — pulling out of large-caps on the secondary market while selectively deploying into primary issuances.
FPI Selling: The Scale of Outflows
Total FPI equity outflows through exchanges reached ₹25,682 crore in the period through 25 August this month alone, underscoring the pace of institutional exodus from the secondary market. On an annual basis, cumulative FPI selling through exchanges has climbed to ₹2,95,971 crore so far this year, according to market data.
In a notable countertrend, FPIs have simultaneously invested ₹54,398 crore through the primary market over the same period. Investment through primary market channels reached ₹8,551 crore up to 25 September, indicating that overseas investors are not abandoning India altogether — they are simply reallocating within it.
The Large-Cap versus Mid- and Small-Cap Split
'The trend of selling through exchanges and investing through the primary market has taken total FPI selling this year through exchanges to ₹2,95,971 crore,' said Dr. VK Vijayakumar, Chief Investment Strategist at Geojit Investments Ltd. He noted that FPIs are 'chasing market momentum' — a posture that explains why, even as they exit large-cap positions, they have remained sustained buyers in mid- and small-cap segments where growth momentum has been stronger.
This bifurcated behaviour signals that FPIs are not making a blanket retreat from India but are rotating within the market based on relative return expectations.
Markets End Lower for Seventh Straight Week
Indian equity benchmarks extended their losing streak, closing lower for the seventh consecutive week. The Sensex declined 0.54% to settle at 73,895.74, while the Nifty fell 0.88% to close at 23,140.50. Broader markets were similarly under pressure, with both midcap and smallcap indices recording weakness. Among sectors, technology and financials were key laggards, while Realty emerged as the strongest-performing segment of the week.
Crude Oil and Geopolitics Dominate Sentiment
Analysts attributed the week's market tone primarily to crude oil prices and ongoing geopolitical developments, which remained the dominant near-term drivers of sentiment. The divergence between improving domestic growth indicators and weakening market breadth suggests that external factors are overriding domestic fundamentals for now.
Volatility is likely to remain elevated until greater clarity emerges on both the crude oil outlook and global geopolitical developments, analysts cautioned. While the improving domestic growth trajectory remains a positive structural signal, the external risk environment warrants a measured approach to fresh equity positions, they added.
Point of View
Not a flight from India. It reflects a rational response to US yield levels that make risk-free dollar returns competitive with emerging-market equity risk premiums. What is worrying is the scale: ₹2,95,971 crore in exchange-route selling this year dwarfs the ₹54,398 crore coming in through the primary market, leaving a sizeable net outflow that domestic institutional buyers must absorb. Seven consecutive weeks of index losses suggest that absorption is straining. The real question markets have not yet answered is whether the FPI rotation into mid- and small-caps will outlast the momentum trade — or whether a sharp crude spike or geopolitical shock triggers a broad-based exit from those segments too.
NationPress
27 Sept 2026
Frequently Asked Questions
Why are FPIs continuing to sell in Indian markets?
FPIs are selling primarily because elevated US bond yields offer competitive risk-free returns, making emerging-market equities relatively less attractive. Additionally, strong returns from India's IPO market are drawing FPI capital toward primary issuances rather than secondary-market purchases.
How much have FPIs sold through Indian exchanges in 2026?
Cumulative FPI selling through stock exchanges has reached ₹2,95,971 crore so far in 2026. In the current month alone, outflows through exchanges stood at ₹25,682 crore through 25 August, according to market data.
Are FPIs investing anywhere in Indian markets despite the selling?
Yes. FPIs have invested ₹54,398 crore through the primary market — predominantly IPOs — during the same period this year, with ₹8,551 crore deployed through 25 September. They have also remained net buyers in mid- and small-cap segments even while selling large-caps.
Why has the Sensex fallen for seven straight weeks?
The Sensex has declined for seven consecutive weeks, closing at 73,895.74 (down 0.54% in the latest week), driven by FPI outflows, high crude oil prices, and global geopolitical uncertainty. The divergence between stronger domestic growth data and weakening market breadth points to external factors as the dominant near-term influence.
What should investors watch going forward?
Analysts recommend monitoring crude oil price trends and geopolitical developments for near-term market direction. Volatility is expected to stay elevated until clarity emerges on these fronts. Investors are advised to take a measured approach to fresh positions despite an improving domestic growth outlook.
