Investor sentiment continues to remain subdued amid global trade tensions, volatile currency movements, and concerns over potential US tariffs, as seen in persistent investment outflow from India.
Foreign portfolio investors (FPIs) have already withdrawn over ₹22,530 crore (USD 2.5 billion) from Indian equities between January 1 and 16, 2026, according to data from NSDL.
Stretched market valuations, rising US bond yields and a stronger dollar, also compelled FPIs to continue their selling streak from last year. In 2025, an outflow of ₹1.66 lakh crore (USD 18.9 billion) was recorded.
This sustained selling pressure by foreign portfolio investors (FPIs) has significantly contributed to the nearly 5 per cent depreciation of the rupee against the dollar during 2025, say market experts.
“Rising US bond yields and a stronger dollar have improved risk-adjusted returns in developed markets, prompting capital reallocation away from emerging markets,” said Sachin Jasuja, Head of Equities and Founding Partner at Centricity WealthTech.
According to V K Vijayakumar, Chief Investment Strategist at Geojit Investments, lingering uncertainty over the US-India trade agreement has also dampened investor sentiment.
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The selling trend could continue until clear positive triggers emerge for a sustained market rally, he said, adding that the AI-led trade that dominated markets in 2025 has carried into early 2026, though a reversal in this trend could occur later in the year.
Echoing similar views, Himanshu Srivastava, Principal-Manager Research at Morningstar Investment Research India, said elevated US bond yields and dollar strength have made US assets relatively more attractive. Geopolitical and trade-related uncertainties add to that and continue to weigh on emerging market risk appetite, he said.
On the domestic front, relatively rich valuations in certain market segments, along with mixed cues from the ongoing earnings season, have led to profit-taking and portfolio rebalancing by foreign investors.
The persistent depreciation of the rupee, down nearly 5 per cent in 2025 and weakening further to around 90.44 per dollar recently, has eroded dollar returns despite stable index levels, adding further pressure on FPI flows, say analysts.
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