FPI flows volatile in FY26 as AI-led capital shifts drive equity outflows: Economic Survey

Foreign portfolio investment (FPI) flows remained volatile in FY26, resulting in a net outflow of $3.9 billion as of December 2025, amid heightened global uncertainty and a redirection of capital towards AI-centric markets such as the US, Taiwan and Korea, the Economic Survey 2025–26 said on Thursday, PTI reported.

The survey noted that FPIs were net sellers of Indian securities between April and December 2025, with purchases concentrated in debt even as equities saw sustained selling pressure. The equity sell-off was attributed 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 investor sentiment.




Export-oriented sectors such as IT and healthcare were particularly impacted, leading to continued FPI equity outflows during FY26 (April–December). The survey said 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.”

The volatility in foreign capital contributed to a balance of payments deficit of $6.4 billion in the first half of FY26, compared with a surplus of $23.8 billion in H1 FY25, which was financed through a drawdown in foreign exchange reserves.

Looking ahead, the survey projected a more favourable outlook for FPI inflows into the debt market, supported by Sebi’s relaxation of investment norms and ongoing India–US trade discussions. As of December 2025, the asset base under custody of FPIs stood at Rs 81.4 lakh crore, a 10.4% rise from March 31, 2025, largely due to valuation gains in equities and steady accumulation in debt.

However, within NSE-listed equities, FPI ownership declined to 16.9% in Q2 FY26, reflecting global risk aversion and sectoral reallocations. In contrast, domestic institutional investors helped stabilise markets amid foreign outflows, with DII ownership in NSE-listed equities rising to 18.7% as of September 2025.