Foreign portfolio investors (FPIs) have remained net sellers in the Indian stock market in five of the last seven sessions in January as the record selloff continues into 2025. After a record net outflow of ₹1,66,286.00 crore in 2024, FPIs have additionally sold Indian equities worth ₹11,789.00 crore this month, according to NSDL data. This sustained selling pressure has pushed the Nifty 50 index 1.71% lower so far in January.

Key Factors Driving FPI Exodus

Trump Tariff Threats and Trade Tensions

Trump threatened fresh tariffs on India over the country's continued purchase of Russian oil. A bipartisan US bill proposing tariffs of up to 500% on countries buying Russian oil has received Trump's backing and awaits congressional approval.

The US views India's purchase of Russian oil as helping Russia fund the war in Ukraine, creating fresh hurdles for the already elusive India-US trade deal. India and the US have had six rounds of trade negotiations but have not yet reached an agreement.

Currency Volatility and Dollar Strength

Santosh Meena, Head of Research at Swastika Investmart, identified the resurgent US Dollar and currency volatility as primary drivers. The Indian rupee depreciated nearly 5% in 2024, and continued weakness is eroding dollar returns for foreign investors, prompting them to hedge by exiting emerging markets.

"The recent US military action in Venezuela has spiked global risk aversion, driving capital toward 'safe-haven' US Treasuries rather than riskier emerging market equities. Furthermore, the looming threat of higher US tariffs on Indian exports—stemming from ongoing US-India trade negotiations—is keeping investors on the sidelines until policy clarity emerges," said Meena.

Global Risk Aversion Impact

The US military action against Venezuela has heightened global risk aversion, making riskier assets like emerging market equities less lucrative for FPIs. Nikunj Saraf, CEO of Choice Wealth, believes that after sharp portfolio adjustments in 2024, many FPIs are still in capital-preservation mode, waiting for clearer signals on global policy direction and growth.

Potential Recovery Catalysts

Despite the challenging environment, several factors could attract FPIs back to Indian markets:

Strong Earnings Growth Prospects

MOSL analysts expect earnings to grow 16% year-on-year in Q3FY25, the highest in eight quarters. CLSA noted that India's relative valuations have become more lucrative, which along with steady earnings growth, could bring back investor interest.

Key Recovery Factors

• Currency Stability: Any signal that the rupee has found a floor would reduce hedging costs for foreign investors
• US Fed Policy Clarity: Clear indications toward sustained rate cuts would ease yield differentials and weaken the US dollar
• Trade Deal Progress: Positive breakthrough in India-US trade talks regarding tariff exemptions would de-risk export-oriented sectors
• Crude Price Stabilization: Stable oil prices would support India's current account dynamics and help the rupee

Ross Maxwell, Global Strategy Operations Lead at VT Markets, emphasized that clarity on the US Fed's rate path and the outcome of the Union Budget will be pivotal for FPI flows.

Market Outlook

While global and macro-level headwinds dominate FPI sentiment, the domestic macro environment remains positive. A structural reversal in FPI flows will likely depend on currency stability and resolution of trade tensions. The combination of strong earnings growth prospects and improving relative valuations could make Indian equities more attractive once global uncertainties subside.

Foreign Portfolio Investors (FPIs) offloaded Indian equities worth ₹3,962.72 crore during the week ended January 9, 2026, marking a continuation of the selling trend from 2025, according to data from the National Securities Depository Limited (NSDL). The selling pressure intensified significantly in the final two trading sessions of the week.

Weekly Trading Pattern Shows Intensified Selling

The week witnessed heightened selling pressure in the last two trading sessions, with FPIs pulling out substantial amounts from the equity segment. The selling was partially offset by inflows earlier in the week, creating a volatile trading pattern.

Market Impact and Historical Context

Dr V K Vijayakumar, Chief Investment Strategist at Geojit Investments Limited, noted that FII investment in early 2026 has begun with the continuation of the trend from the previous year. In 2025, FIIs had net sold equity worth ₹166,283 crore, impacting the performance of the Indian market and weakening the rupee by approximately 5.00 percent.

The cumulative FPI outflow from the cash market stood at ₹8,017.51 crore as of January 2026, according to inputs from Shrikant Chouhan, Head Equity Research at Kotak Securities. Chouhan reported that the total FII selling from the cash market through January 9 reached ₹11,784 crore.

US Trade Tensions Drive Sentiment

At the beginning of 2026, market expectations centered on FIIs turning buyers due to improvement in GDP growth and corporate earnings. The market also expected the much-delayed US-India treaty to materialize early in the year. However, geopolitical developments took a turn for the worse with US intervention in Venezuela and absence of positive developments on trade talks.

The sell-off intensified after negative commentary from the US commerce secretary, which gave the impression that the trade agreement would be further delayed. This impacted market sentiments and led FIIs to continue selling by increasing the volume of selling in the last two trading days.

Debt Market Activity and Global Context

The debt segment saw mixed activity during the week, with varying flows across different investment routes.

Chouhan observed that global equity markets continued to witness a risk-on rally, while Indian markets widely underperformed. Global market performance was driven by geopolitical events in Venezuela, continued optimism on AI, and improving earnings growth expectations in the US for Q4CY25. Indian markets priced in increasing trade and disruption risks based on news flows and a tepid Q3FY26 earnings season.

Economic Outlook and Sectoral Trends

On the economy front, the National Statistical Office estimated FY26 real GDP growth at 7.40 percent, implying 6.90 percent growth in 2HFY26. Despite DII buying of ₹17,900 crore in January through January 9, Nifty drifted down by 618 points in the week ending January 9, reflecting weak market sentiments.

Sectoral rotation by FPIs in late December reflected valuation discipline and changing macro cues. Pranay Aggarwal, Director and CEO of Stoxkart, noted strong buying in IT led by attractive valuations, rupee depreciation, and optimism around AI-led growth. In contrast, FPIs sold FMCG due to stretched valuations and weak volume growth, while reducing exposure to financial services and auto sectors.

Future Outlook Remains Uncertain

Looking ahead, FPI flows are expected to remain volatile. Sachin Neema, fund manager at Garud Investment Managers, indicated that any further negative news on US-India trade tariffs could exacerbate selling by FIIs. Vijayakumar concluded that for FIIs to turn buyers in India, sentiments need to improve with positive developments on the US-India trade agreement and an uptick in earnings growth.