Have FIIs Returned?

FIIs massive outflow in 2025, here's why 

Despite India remaining one of the fastest-growing major economies, a combination of global and domestic headwinds reduced its relative attractiveness. 

Foreign Institutional Investors (FIIs) recorded their largest-ever annual exit from Indian equities, withdrawing over Rs 1.58 lakh crore (approximately USD 18.4 billion). 

Valuations were one key concern. The Nifty 50 was trading at a P/E ratio of around 24.1x - significantly above its 10-year average of 21.9x. At the same time, China’s markets were trading at nearly 10x earnings and were supported by aggressive stimulus measures. From a tactical asset allocation perspective, global funds rotated capital toward cheaper opportunities. 

The global fixed-income environment added further pressure. With U.S. 10-year Treasury yields hovering near 4.6 per cent, investors could earn attractive “risk-free” dollar returns. The yield gap made emerging market equities less compelling unless earnings growth decisively outperformed expectations, something that appeared uncertain following mixed Q3 2025-26 corporate results in India. 

Currency depreciation compounded the problem. The Indian Rupee hit an all-time low of Rs 91.01 per dollar in late 2025 and remained under pressure in January 2026. For foreign investors, rupee weakness eroded dollar-adjusted returns, effectively diminishing portfolio gains once repatriated. 

The result: sustained FII outflows and heightened market volatility. 

January 2026 – FIIs Selling Continues 

The new year began much like the old one ended - with persistent foreign selling. In January 2026, foreign portfolio investors (FPIs) pulled out approximately Rs 35,962 crore from the Indian equity market. Elevated U.S. yields, currency pressures, and lingering valuation concerns kept FIIs defensive. January saw aggressive positioning adjustments, widening the disconnect between fundamentals and price action. 

Ironically, this very selling laid the groundwork for February’s turnaround. As prices corrected and valuations cooled, a “value gap” began to emerge. 

February 2026 – Turnaround Month 

February marked a noticeable change in tone. 

Several daily sessions illustrate this recalibration. FIIs turned net buyers on multiple occasions (notably February 11, 2026, February 23, 2026 and February 25, 2026), suggesting a transition from defensive positioning to selective accumulation. 

Month-to-date data from the NSE’s capital market segment reveals a structural shift: 

• FIIs: Net buyers of Rs 4,361 crore 

• DIIs: Net buyers of Rs 21,098.73 crore 

FII/FPI & DII trading activity on NSE in Capital Market Segment 

(All figures in Rs crore) 

While FII participation has resumed cautiously, Domestic Institutional Investors (DIIs) have clearly been the primary stabilising force. Deploying nearly 12 times more net capital than FIIs during the month, DIIs have demonstrated strong domestic conviction. 

However, the frequent alternation between buying and selling indicates that foreign investors are not indiscriminately bullish. Instead, they appear to be engaging in tactical allocation - buying into valuation comfort zones and trimming exposure when markets stretch. 
Disclaimer: The article is for informational purposes only and not investment advice.