Foreign Investors Pull Out Rs 35,860 Crore from Indian Stocks in September

Foreign portfolio investors (FPIs) reversed their buying trend in September, emerging as net sellers by withdrawing a substantial Rs 35,860 crore from Indian stock markets. This shift comes in the backdrop of rising global uncertainties, elevated crude oil prices, and persistently high US interest rates, factors that have put pressure on emerging market investments.

Data from Central Depository Services Limited (CDSL) reveals that this selling momentum extended into October, with FPIs pulling out an additional Rs 9,232 crore from Indian equities on the very first day of the month. This marks a notable change from the preceding two months of July and August, when FPIs had invested Rs 20,200 crore and Rs 29,630 crore respectively, showing a strong inflow before the reversal.

Overall, the net outflow from Indian equities by foreign investors in 2026 has reached approximately Rs 2.7 lakh crore. This figure significantly surpasses the Rs 1.66 lakh crore that exited the market throughout 2025, indicating intensified pressure on the capital markets from international investors this year.

Rajesh Singla, Fund Manager and CEO at Alpha AMC, attributed the withdrawal primarily to external factors. He pointed out the impact of elevated crude oil prices amid supply concerns linked to the strategic Strait of Hormuz, the depreciation of the Indian rupee, persistently firm US bond yields, and profit-taking after robust inflows in the earlier part of the year. Additionally, there has been a rotation of investment towards AI-focused markets in North Asia, drawing capital away from India.

Singla emphasized that this trend is largely driven by global asset allocation decisions rather than domestic economic fundamentals. He noted, "This is a global allocation story, not a domestic earnings one." He also highlighted that steady domestic mutual fund systematic investment plan (SIP) inflows have helped cushion the impact of foreign selling. Segments like small and medium enterprises and small-cap stocks, which typically have limited FPI participation, have remained relatively insulated from this sell-off.

Looking ahead, analysts suggest that the trajectory of FPI flows will be closely tied to geopolitical developments, particularly the ongoing Iran-US tensions and their influence on crude oil prices. The US 10-year Treasury yield hovering around 5 percent adds to the headwinds for Indian equities, potentially discouraging foreign capital inflows.

Despite these challenges, India's economic resilience and prospects for stronger corporate earnings growth are viewed as positive factors supporting the market. The domestic economy continues to show expansion, which could attract investments in the medium term.

Meanwhile, foreign investors also reduced their exposure in the Indian debt market during September. Withdrawals amounted to Rs 10,431 crore through the Fully Accessible Route (FAR), Rs 5,049 crore via the Voluntary Retention Route (VRR), and Rs 5,246 crore through the general route. This trend highlights a broader cautious stance by international investors across asset classes in India.

The sell-off by FPIs in Indian equities and debt markets underscores the sensitivity of emerging markets to global macroeconomic factors and geopolitical risks. As global central banks maintain higher interest rates and energy prices remain volatile, foreign investment flows could continue to fluctuate.

For investors and market participants, monitoring these external dynamics alongside domestic economic data will be essential in assessing future market movements and capital flow trends. The Indian market’s underlying growth story remains intact, but near-term volatility could persist as global conditions evolve.