Foreign Institutional Investors Withdraw $64 Billion from India
Despite attractive valuations, FIIs continue to exit Indian markets, with crude oil prices being a critical factor for their return.
FIIs have withdrawn nearly $64 billion from Indian equities over two years.
Brent crude prices above $105 per barrel correlate with FII sell-offs.
Domestic investors have mitigated market impact, purchasing $91.7 billion amid FII exits.
Foreign Institutional Investors (FIIs) have significantly reduced their presence in Indian equity markets, pulling out approximately $64 billion over the past two years. This trend persists despite the attractive valuations and a promising earnings outlook for Indian companies. Analysts from JM Financial suggest that a key factor that could entice FIIs back into the market is a sustained decrease in crude oil prices, which have been a significant concern for foreign investors.
The data reveals that FIIs net sold $59.2 billion from September 2024 to September 2026, with an additional outflow of about $5 billion in October 2026. This marks the longest and most substantial sell-off in the last two decades. Notably, the report indicates that FIIs sold $14.9 billion in FY25, $21.9 billion in FY26, and $17.7 billion in FY27, highlighting a consistent trend of withdrawal.
Brent crude oil prices are identified as a crucial variable affecting foreign investment flows. Historically, prices exceeding $105 per barrel have coincided with increased selling by FIIs, while a drop below $90 has typically signaled a reduction in selling pressure. As of late October, Brent crude was priced around $115 per barrel, indicating that the current oil price environment is not conducive for a significant return of foreign capital.
Despite India's robust economic growth, which recorded a 7.8% year-on-year increase in the first quarter of FY27, FIIs continued to sell off their holdings, indicating a disconnect between economic performance and foreign investment sentiment. The report also highlights that while earnings growth for the Nifty 50 index is expected to improve, it has not been sufficient to reverse the outflow trend. JM Financial anticipates earnings growth of 14.2% for FY27 and 17.9% for FY28, but these figures alone may not trigger a turnaround in FII sentiment.
Looking ahead, JM Financial projects a 45% chance that Brent crude will remain between $100 and $115 per barrel, suggesting that while valuations may offer some support, oil prices will continue to limit market recovery. The firm estimates potential inflows of $15 billion to $20 billion for FY27 and $10 billion to $15 billion for FY28 if conditions stabilize. However, geopolitical factors in West Asia could either accelerate or delay this recovery, with the possibility of further outflows if tensions escalate.
