Indian Stock Market Faces Continued Selling Pressure from Foreign Investors in 2024

Foreign Portfolio Investors Remain Cautious on Indian Stocks

Foreign portfolio investors (FPIs), who have been aggressively selling Indian stocks since last year, may continue to be net sellers in India due to a challenging macroeconomic situation. According to experts, several factors are contributing to their cautious stance, including elevated crude oil prices, inflation concerns, weak corporate earnings, depreciation of the Indian rupee, and the lack of AI trade.

NSDL data show that FPIs have sold Indian equities worth over ₹2,20,000 crore so far in 2026, after offloading ₹1,66,286 crore in equities last year. While domestic institutional investors (DIIs) have consistently bought Indian equities during this period, cushioning the impact of massive foreign capital outflows, sustained FPI selling remains one of the key reasons behind the underperformance of the Indian stock market.

Weak Return Prospects and Macro Constraints

Read also: Treasury Yields Experience Largest Increase in Two Weeks Following Release of Labor Market Data

A confluence of factors is behind the flight of foreign investors from the Indian stock market, with weak return prospects being the biggest concern. According to Shankar Sharma, a stock market veteran and founder of AI-tech firm GQuant Investech, the Indian stock market has witnessed only two truly broad-based bull runs – the first between 2003 and 2008, and the second after the pandemic around 2020–21. Foreign Portfolio Investors (FPIs) have been steadily pulling money out of Indian equities amid concerns over weak return prospects.

Equity benchmark Nifty 50 is down 3% over the last year, while the S&P 500 has jumped over 27%. Weak earnings, rupee volatility, and the lack of AI trade are also among the key factors behind their selloff.

Experts' Views on FPIs' Selling

Read also: US-Iran Tensions Spark Uptick in Oil Prices Amid Global Market Decline

Experts point out that near-term macroeconomic concerns are valid. Elevated inflation, high crude oil prices, and uncertainty around interest rates indicate FPIs may stay away from the Indian market. According to VK Vijayakumar, Chief Investment Strategist at Geojit Investments, currency stability is an important factor for foreign investors. Recently, there have been some signs of stability in the rupee. If that continues, FPIs may reduce the intensity of their selling.

However, FPIs may continue to be cautious on Indian markets this year, but it may not necessarily turn into a prolonged one-way selling trend. According to Ravi Singh, Chief Research Officer (Research) at Master Capital Services, FPIs may continue to stay selective and move based on sector opportunities, earnings outlook, and valuations.

Impact of US Interest Rate Hikes

Elevated crude oil prices have raised inflationary pressure and raised the prospects of monetary tightening by the US Federal Reserve in the near future. The minutes of the US Fed's April policy meeting indicated that policymakers may consider hiking rates in the near future if inflation remains above the Fed's 2% target for a longer period. According to CME Group's FedWatch tool, traders are pricing in a 60% chance of a Fed rate hike by December. If the US hikes rates, it may worsen foreign capital outflows from India. However, FPIs might occasionally buy in India to diversify away from markets where valuations are stretched.