FPIs Flow Remained Volatile In FY26 On Global Uncertainty, Capital Shift Towards AI-Hubs: Eco Survey

Foreign Portfolio Investment (FPI) flows in FY26 remained volatile, leading to a net outflow of $3.9billion as of December 2025, driven by elevated uncertainty and increased capital allocation towards AI-centric markets such as the US, Taiwan, and Korea, the Economic Survey 2025-26 said on Thursday.

Overall, FPIs were net sellers of Indian securities from April to December 2025. They purchased Indian debt securities while offloading equities during the period.

The sell-off from equities was mainly due to the “relative underperformance of Indian equities compared to other major markets, alongside trade and policy uncertainties, the depreciation of the Indian rupee, and abroad-based global risk-off sentiment amid elevated US bond yields, which weighed on FPI flows”, it added.

These factors dampened sentiment towards Indian equities, particularly export-oriented sectors such as IT and healthcare, leading to continued FPI outflows in FY26 (April-December).

According to the Survey tabled in Parliament, “FPI flows this year have been tepid due to elevated uncertainty and increased interest in AI-related financial investments in countries such as the US, Taiwan, and Korea”.

As a result, there was a balance of payments (BOP) deficit of $6.4billion in H1 FY26 compared to a surplus of $23.8billion in H1 FY25, which was funded by a decline in foreign exchange (forex) reserves, it added.

The Survey projected that the outlook for FPI inflows into the debt market remains positive, supported by markets regulator Sebi's relaxation of FPI investment norms and ongoing India-US trade discussions.

As of December 2025, the asset base under custody of FPIs stood at ₹81.4lakh crore, marking a 10.4% increase from March 31, 2025, driven largely by valuation gains in equities and steady accumulation in debt holdings.

Within National Stock Exchange (NSE) listed equities, however, the share of FPI ownership declined to 16.9% (for Q2FY26), in line with global risk aversion and sectoral reallocations.

In the midst of volatile foreign capital flows, domestic institutional investors (DIIs), particularly mutual funds and insurance companies, have counterbalanced FPI outflows’ volatility and provided much-needed support to markets.

With continued buying, as of September 2025, DII ownership within NSE-listed equities stood at 18.7%.