After investing in Indian equities for two consecutive months, foreign investors turned net sellers in the first week of September, pulling out ₹7,443 crore as a rebound in crude oil prices, rising U.S. bond yields, and a firm dollar dented risk appetite.

The outflow came after foreign portfolio investors (FPIs) infused ₹30,919 crore in August and ₹20,200 crore in July. Before that, they remained net sellers for four straight months from March to June.

With the latest withdrawal, total outflow by foreign portfolio investors from Indian equities has climbed to ₹2.32 lakh crore so far in 2026, surpassing the ₹1.66 lakh crore withdrawn in 2025.

Rajkumar Rathi, Chief Investment Officer at YES Securities, said the recent selling was driven by a rebound in crude oil prices, raising concerns over India’s inflation and current account outlook.

“Further strengthening U.S. bond yields and a firm dollar index have reduced foreign risk appetite for emerging markets,” he said.

Mr. Rathi also pointed to India’s premium equity valuations, particularly in growth sectors and the mid- and small-cap segments, as factors prompting foreign funds to book profits and rebalance portfolios.

However, he said foreign investor appetite for India’s primary market has remained “structurally resilient”.

Looking ahead, global bond yields are likely to remain a key driver of FPI flows, V.K. Vijayakumar, Chief Investment Strategist at Geojit Investments, said.

Brent crude prices, evolving U.S.-Iran geopolitical tensions and upcoming U.S. inflation data ahead of the Federal Reserve’s mid-September policy meeting will also influence foreign fund flows, said Pabitro Mukherjee, Deputy Vice President-Research at Bajaj Broking.

Foreign investors also extended their selling to the debt market. They withdrew ₹377 crore through the Fully Accessible Route (FAR) and ₹231 crore through the Voluntary Retention Route (VRR), while investing ₹217 crore through the general route.

Foreign investors extended their selling spree in June, withdrawing ₹49,340 crore ($5.16 billion) from Indian equities, triggered by a combination of early-month global risk aversion, a preference for developed markets, soaring U.S. bond yields, and stretched valuations in the domestic market.

With the latest outflows, total withdrawals by Foreign Portfolio Investors (FPIs) from Indian equities have surged to ₹2.7 lakh crore so far in 2026, surpassing the ₹1.66 lakh crore pulled out during the entire calendar year 2025, according to data from the Central Depository Services (India) Ltd.

According to the data, FPIs remained net sellers in every month of 2026 except February. They withdrew ₹35,962 crore in January before turning net buyers in February, investing ₹22,615 crore, marking the highest monthly inflow in 17 months.

The trend, however, reversed sharply in March, when foreign investors pulled out a record ₹1.17 lakh crore. The selling pressure continued in April with net outflows of ₹60,847 crore and in May with withdrawals of ₹32,963 crore. In June, FPIs withdrew ₹49,340 crore.

Himanshu Srivastava, Principal, Manager Research, Morningstar Investment Research India, said the outflow during the month was largely driven by “global risk aversion in the first half of June, continued preference for developed markets, higher U.S. yields, and valuation concerns around Indian equities”.

However, geopolitical risks eased in the second half of June following the positive developments around the peace deal between the U.S. and Iran, which helped calm global markets and led to a correction in crude oil prices. This improved risk sentiment and reduced concerns about energy-price shocks, he added.

As a result, the pace of FPI selling moderated later in the month, although it was not enough to offset the sizeable outflows recorded earlier.

V.K. Vijayakumar, Chief Investment Strategist atGeojit Investments, attributed two factors to the moderation in FPI activity — stabilisation and appreciation of the rupee against the dollar, and heavy FPI profit-booking amid high volatility in the South Korean and Taiwanese markets.

Given the importance of foreign portfolio flows in financing the current account deficit and supporting the balance of payments, policymakers announced a series of measures in June aimed at attracting overseas capital.

These include the RBI absorbing hedging costs on FCNR deposits mobilised by commercial banks, expanding the forex swap window, increasing access to government bonds through the Fully Accessible Route (FAR), and raising investment limits for non-resident Indians and overseas citizens of India in domestic equities.

In contrast to the equity outflows, FPIs invested ₹21,652 crore in debt securities through the FAR route during June and ₹3,246 crore through the voluntary retention route.