Foreign Investors Withdraw Rs 43,000 Crore from Indian Equities in First Week of June Amid AI Trade and Rupee Weakness

Foreign Investors Continue to Pull Out of Indian Equities Amid Shift in Global Capital

Foreign investors have continued to pare their exposure to Indian equities, pulling out nearly Rs 43,000 crore in the first week of June. This trend is attributed to a shift of global capital towards technology and artificial intelligence (AI)-linked opportunities overseas, as well as persistent weakness in the rupee.

According to data available with the National Securities Depository Ltd (NSDL), total outflows by Foreign Portfolio Investors (FPIs) from Indian equities have reached Rs 2.67 lakh crore so far in 2026. This surpasses the Rs 1.66 lakh crore withdrawn during the whole of 2025.

Market experts attribute FPIs' reduction in exposure to Indian equities to a combination of weak earnings growth, rupee depreciation, and the emergence of more attractive investment opportunities in global markets, particularly in the technology and AI space.

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The data indicates that FPIs were net sellers in all months of 2026 except February. They pulled out Rs 35,962 crore in January before turning net buyers in February, when they invested Rs 22,615 crore, the highest monthly inflow in 17 months. However, the trend reversed sharply in March, when foreign investors withdrew a record Rs 1.17 lakh crore.

Market experts note that persistent depreciation of the rupee has emerged as another key factor behind the sustained outflows. The Indian currency has weakened nearly 6% so far in 2026 and around 10% over the past year, falling from the mid-80s to about 95.5 against the US dollar despite efforts by the Reserve Bank of India (RBI) to stabilise the currency.

Given the importance of foreign portfolio flows in financing the current account deficit and supporting the balance of payments, policymakers have announced a series of measures aimed at attracting overseas capital. These measures include exempting interest and capital gains arising from FPI investments in government securities from taxation, absorbing hedging costs on FCNR deposits mobilised by commercial banks, expanding the forex swap window, increasing access to government bonds through the Fully Accessible Route (FAR), and raising investment limits for non-resident Indians (NRIs) and overseas citizens of India (OCIs) in Indian equities.

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However, Geojit Investments Chief Investment Strategist V K Vijayakumar cautions that a sustained revival in FPI inflows would depend on a moderation in the global AI-driven investment theme, which has been drawing capital away from emerging markets, including India. Early signs of this happening include the sharp decline in the Nasdaq on June 5, indicating that the AI trade may be losing momentum. If the AI-driven rally cools and reverses, it could trigger a reversal in FPI outflows from India.

On the other hand, FPIs invested over Rs 2,600 crore in debt through the Fully Accessible Route in the first week of June, taking the total to Rs 17,230 crore in this year so far.