Foreign Selling Erases Nine Years of Indian Equity Buying as Domestic Money Cushions the Fall

A $63.6 billion reversal reshapes Indian stocks

Foreign investors have sold almost $63.6 billion of Indian equities since October 2024, wiping out roughly $63.5 billion of buying accumulated over the previous nine years. The cumulative foreign equity flow series beginning in October 2015 now stands at approximately minus $110 million, according to figures attributed to National Securities Depository Ltd (NSDL).

The reversal has accelerated in 2026. Overseas investors have withdrawn about $32.8 billion, following $18.9 billion of outflows in 2025. Behind those numbers is a difficult combination for India: expensive imported oil, attractive returns on US government bonds, a weakening rupee and global enthusiasm for artificial intelligence investments concentrated elsewhere.

Indian institutions have been buying heavily in the opposite direction. Motilal Oswal Financial Services puts their investment between October 2024 and June 2026 at a record $162 billion. A subsequent market tally places domestic purchases during the broader selling period above $180 billion, roughly three times foreign sales.

That buying has softened the damage without producing a sustained recovery. The Nifty 50 has fallen around 14% from its September 2024 peak in the comparison accompanying the foreign selling figures. Domestic savings are helping absorb shares that foreign investors want to sell, while company profits, currency movements and competing investments continue to determine what buyers will pay.

The change reaches beyond daily market movements. It is shifting ownership toward Indian institutions, putting greater pressure on large companies with substantial foreign shareholdings and making overseas investors more selective about where they commit fresh money.

How the retreat developed

October 2024 marked the start of the sustained withdrawal. By June 2026, foreign investors had sold nearly $60 billion since the market peak, with the sharpest pressure arriving during the Middle East conflict.

The main stages show why a brief improvement in buying did not end the broader retreat:

• October 2015 to September 2024: Foreign investors accumulated approximately $63.5 billion in the long period flow series.
• October 2024: Foreign withdrawals reached 940 billion rupees, the monthly record before March 2026.
• 2025: Foreign equity outflows totaled about $18.9 billion.
• March 2026: Withdrawals reached approximately $12.7 billion, followed by $6.5 billion in April.
• June 2026: Investors sold $5.2 billion, the fourth consecutive month of net withdrawals, despite some renewed buying later in the month.
• September and October 2026: Selling continued, with withdrawals of 358.61 billion rupees in September and another 474.17 billion rupees through October 12.

Motilal Oswal's June assessment put withdrawals for the first six months at $29.2 billion. February was the only month in that period with net inflows, totaling $2.5 billion. Between March and June alone, overseas investors withdrew nearly $27.4 billion.

A US-Iran ceasefire briefly improved sentiment. Motilal Oswal said average daily foreign activity shifted from roughly $400 million in net selling during the peak of the conflict to about $100 million in net buying afterward. Continued withdrawals in September and October show how fragile that improvement was.

Oil puts India under particular pressure

India is the world's third largest oil importer, making disruptions to Middle East energy supplies especially costly. Higher oil prices increase the country's import bill, raise business costs and create additional demand for dollars to pay overseas suppliers.

Peeyush Mittal, a portfolio manager at Matthews Asia, linked the surge in March withdrawals directly to the conflict:

Large FII outflows in March 2026 are linked to the conflict in the Middle East.

HSBC's preliminary Purchasing Managers' Index for March showed private sector activity growing at its weakest pace since October 2022, while cost inflation approached its highest level in four years. The index surveys businesses about conditions such as orders, production and costs, providing an early indication of economic momentum.

Hanna Luchnikava-Schorsch, head of Asia-Pacific Economics at S&P Global Market Intelligence, put India's net oil imports at 3.5% of gross domestic product. She warned that sustained high prices could pressure the rupee, while weaker remittances from the Middle East could add to strains on India's external finances.

Pankaj Murarka, chief executive and chief investment officer of Renaissance Investment Managers, outlined a conditional scenario in which oil settling at $85 to $95 a barrel after the war could trigger an additional $40 billion to $50 billion in outflows and reduce economic growth from 7.2% to 6.5%. Those figures were his forecast under that oil price scenario.

The government responded to fuel pressures by cutting special excise duties on petrol and diesel by 10 rupees per litre each, Finance Minister Nirmala Sitharaman said. Petroleum and Natural Gas Minister Hardeep Singh Puri said the government would take a substantial revenue hit to support oil companies facing losses.

A weaker rupee reduces foreign returns

Overseas investors measure their results in dollars as well as rupees. A share can hold its value in India while becoming worth less when the proceeds are converted back into foreign currency.

Sankalpa Bhattacharjee, who teaches economics at IIM Ranchi, illustrated the effect using a move in the exchange rate from 89.92 rupees per dollar to 96.77. At those rates, a holding whose rupee value stayed unchanged would lose about 7.1% of its dollar value. An investor would need a rise in the share price simply to offset that currency loss.

US government bonds have also become more competitive. The US Treasury yield cited by PL Capital's Amnish Aggarwal was about 5.3%; the US Treasury yield for debt maturing in 10 years stood at 5.28% on October 7 in Bhattacharjee's analysis.

Higher bond yields give investors an alternative to taking equity risk. They can also increase business borrowing costs and reduce the price investors are willing to pay today for profits expected years from now.

Aggarwal said the Nifty 100 had delivered annualised dollar returns of only 1.2% over five years. He also identified deficient monsoon conditions and the risk of a strong El Niño as potential sources of further volatility, alongside oil prices and interest rates. Weather matters because poor rainfall can weaken agricultural incomes and increase food costs.

Global money follows the AI trade

India is competing for capital with markets that contain more of the companies benefiting directly from spending on artificial intelligence and semiconductors. Jignesh Desai, chief executive for institutional equities at Centrum Broking, said global investors were directing money toward those businesses in the United States, Taiwan and South Korea.

A Goldman Sachs report dated October 8 put Taiwan's weight in the MSCI Asia Pacific ex-Japan Index at 29% and South Korea's at 22%. India's share had fallen from 19% a few years earlier to 10%. Index weights matter because they influence the portfolios of funds that track or compare themselves with those benchmarks.

Nomura's allocation data showed that 68% of Asia and Asia Pacific funds excluding Japan held less India exposure than their benchmarks in February, up from 63% in January. Such a position, called an underweight, means a manager has allocated a smaller share to India than the comparison index.

Sitharaman acknowledged concern about capital moving toward AI investments and the United States. She also argued that India had less exposure to a possible reversal in that trade because it had received less of the associated investment, while pointing to efforts to establish semiconductor manufacturing.

Financial shares bear the largest burden

Motilal Oswal's broader 2026 sector figures put foreign selling of financial services shares at $12.2 billion, followed by $4.1 billion in automobiles and $3.9 billion in oil and gas. Financial companies therefore accounted for roughly 37% of the $32.8 billion annual withdrawal figure.

The brokerage's assessment through June had placed financial services outflows at $11.8 billion and technology outflows at $3.7 billion. Capital goods, metals and services attracted $2.3 billion, $1.4 billion and $600 million respectively during that period.

Monthly trading could still move against those broader patterns. Financial services attracted $400 million in June even after heavy selling earlier in the year, while metals lost $1 billion that month despite attracting money across the first half.

Large companies have felt particular pressure because foreign ownership is concentrated in sectors such as banking and technology. Manish Jain, deputy chief executive of Choice AMC, attributed part of the better performance of medium and smaller companies to their thinner foreign ownership and strong domestic fund inflows.

Jain said the Midcap 150 and Smallcap 250 delivered total returns of 4.6% and 7.2% over the 12 months to September, compared with a 7.1% loss for the Nifty 50. He also cited 168.73 billion rupees of September inflows into funds investing in medium and smaller companies, about 44% of equity fund inflows that month.

Domestic savings cushion the selling

Indian equity mutual funds have recorded net inflows every month since March 2021, according to Association of Mutual Funds in India data. Regular contributions through systematic investment plans, or SIPs, have become a recurring source of demand even when share prices fall.

Jain put September equity fund inflows at 383.07 billion rupees and SIP contributions at a record 324.90 billion rupees. Yet the Nifty fell about 6% that month. He described the role of domestic money this way:

The caveat: domestic money sets the floor, not the ceiling.

Ownership figures show the shift. Motilal Oswal said foreign institutional ownership of the Nifty 500 fell to a record low of 17.1% in March 2026, while domestic institutional ownership reached a record high of 20.9%. The domestic share exceeded the foreign share by 3.8 percentage points.

Sitharaman highlighted another consequence of that liquidity: it gives existing shareholders a ready market in which to sell. Multinational companies, private equity funds and foreign investors have been able to reduce holdings through public markets, sometimes at a premium.

A large ITC transaction illustrates how money can move between owners even during a foreign retreat. GQG Partners sold about a 3% stake for approximately 94 billion rupees. Fidelity Advisor Overseas Fund bought slightly more than 1% for 34.48 billion rupees, while ICICI Prudential Mutual Fund and SBI Mutual Fund also bought equities in the transactions described.

New share issues still attract overseas buyers

Foreign investors have continued committing money to new share offerings while selling shares already trading on exchanges. Motilal Oswal put secondary market sales over roughly two years at nearly $63 billion and investment in primary offerings at $21 billion.

The primary market is where companies or existing owners offer shares through new issues. The secondary market is where investors trade shares that are already listed. Foreign demand has been much stronger in the former than in the latter.

NSDL figures through October 12 put 2026 secondary market withdrawals at 3.64 trillion rupees, or $38.69 billion, alongside primary market inflows of 564.85 billion rupees, or $5.97 billion. The new issue inflows offset about 15% of the secondary market withdrawal in dollar terms.

The long period flow balance has therefore returned close to zero while overseas investors retain substantial holdings. At the end of September, foreign holdings were valued at $689.41 billion, representing 14.5% of the Indian equity market. A flow measures money moving in or out during a period; holdings measure the value of investments still owned at a particular date.

Cheaper shares put earnings in focus

HSBC said the Nifty 50 was trading at about 16 times forecast earnings for the following 12 months, a level reached only twice in the previous decade. That ratio means investors were paying approximately 16 rupees for each rupee of expected annual profit.

Financial shares traded at 1.7 times forecast book value, compared with a five year average of 2.4 times, a discount of about 29%. Book value measures assets minus liabilities. Technology shares traded at about 18 times expected earnings, against an average of roughly 23 times, a discount of about 22%.

Company profits remain central to whether those prices attract sustained buying. Bhattacharjee's October analysis put expected earnings growth for the largest 200 companies in the financial year ending March 2027 at 9.2%, down from 16.4% in March. Slower expected profit growth can make investors demand a lower price even when economic output is expanding strongly.

HSBC said quarterly results would be decisive for a lasting recovery, particularly evidence that companies can grow revenue and protect profit margins against higher costs. It also identified lower oil prices and bond yields as potential catalysts for renewed interest.

Kotak Institutional Equities challenged explanations focused mainly on the direction of investor money:

The typical market explanations for stock price movements related to 'flows' are risible,

The brokerage argued that earnings growth and valuation multiples remain the key drivers of share prices. Domestic purchases can absorb foreign sales, while stronger profits can give investors a reason to pay more for the shares they buy.

No date has been set for a sustained foreign return. Desai identified a steadier rupee, cheaper crude, improving earnings expectations and a cooling AI trade as conditions that could help. Sitharaman has identified persistent capital outflows as a risk facing India in 2027.

Key Points

• Foreign selling of almost $63.6 billion since October 2024 has erased roughly nine years of accumulated buying in the long period flow series.
• Foreign investors have withdrawn about $32.8 billion in 2026, following $18.9 billion in 2025.
• Higher oil prices, US bond yields, rupee weakness and competing AI investments are weighing on overseas demand.
• Domestic institutions invested a record $162 billion between October 2024 and June 2026, cushioning the retreat.
• Foreign investors continue buying new share issues and retain substantial Indian equity holdings.
• HSBC sees company earnings, lower oil prices and lower bond yields as central to a sustained recovery.