How India Wins Back FPIs: Investors Return After Two Months of Heavy Outflows

Overview: Foreign portfolio investors (FPIs) returned to buying Indian equities in the second half of October 2026 after heavy withdrawals in September and early October. The late-month purchases brought some relief to the market, but October still recorded substantial net equity outflows. A shift in global investment preferences, selective opportunities in Indian large-cap stocks and regulatory steps to ease FPI compliance have all contributed to the changing picture.

Foreign portfolio investors (FPIs) spent much of September and the first half of October reducing their exposure to Indian equities. The selling reflected a combination of global and domestic concerns, including elevated crude oil prices, interest-rate uncertainty, corporate earnings and competition from overseas markets. The scale of the withdrawals made foreign investment flows an important concern for the Indian stock market.

The direction changed towards the end of October. FPIs returned as net buyers, with a notable increase in purchases of listed shares. The development raises an important question: has India started winning back foreign investors, or are these purchases a short-term response to changing global market conditions? The distinction matters because a sustained return of foreign capital would require more than a few sessions of buying.

October buying follows two months of heavy withdrawals

According to data from the Central Depository Services (India) Limited (CDSL), FPIs withdrew ₹34,843 crore from Indian equities in October 2026. This followed withdrawals of ₹35,861 crore in September, making it the second consecutive month of heavy selling.

The contrast with the preceding months is sharp. FPIs had invested ₹20,200 crore in July and ₹29,631 crore in August. With the October withdrawals, cumulative FPI outflows from Indian equities during 2026 reportedly reached approximately ₹2.95 lakh crore.

The late-month trend, however, was different. FPIs invested around ₹6,300 crore between 26th and 30th October, compared with net outflows of nearly ₹2,700 crore in the week ended 23 October. They were net buyers in three of the four trading sessions ending 30th October.

This improvement is significant, but it does not change October’s overall position. Foreign investors remained net sellers for the month.

Secondary-market buying gathers pace

The late-month purchases were also visible in the secondary-market data.

According to NSDL data, reported by The Economic Times, FPIs made net purchases of nearly US$1.2 billion in the secondary market between 16th and 30th October. The report also recorded primary-market purchases of around US$600 million during the period.

Another report, quoting NSDL and stock-exchange data, put FPI secondary-market sales for the month at ₹38,513 crore. It reported primary-market investments of ₹12,902 crore, the highest monthly primary-market investment since July 2025.

These figures need to be read with care. The CDSL figure of ₹34,843 crore is reported as the net withdrawal from Indian equities for October. A Business Standard report separately gives secondary-market sales and primary-market investments. The two reports do not provide a reconciliation that explains the difference between their reported totals. They should therefore be treated as separate source-reported figures, not combined to derive a single monthly net-flow number.

The primary-market investment is nevertheless noteworthy. It suggests that foreign investors continued to participate in selected new issues even while reducing exposure to shares traded on the stock exchanges. Primary-market participation and secondary-market buying do not necessarily reflect the same investment decisions or time horizons.

The late-October buying appears to reflect several developments rather than one decisive change in India’s investment outlook.

A shift in global allocation towards Indian large-cap stocks

A key driver behind the FPIs’ return is the evolving international demand for artificial-intelligence and technology shares. As concerns about the sustainability and valuations of the global AI trade increased, some investors began reassessing their exposure to other markets.

Market participants reportedly said that Indian large-cap banks and information technology companies were being viewed by some investors as alternatives to heavily AI-exposed overseas stocks. This may have encouraged model-driven and short-term allocation flows into Indian equities.

However, this should not be interpreted as a broad return of long-term foreign investors. The same report cited market participants who cautioned that part of the buying could be positional, aimed at taking advantage of relative market performance rather than reflecting a renewed long-term commitment to India.

Selective opportunities in Indian equities

There were also signs of selective interest in Indian companies. Fund managers cited improving growth prospects and opportunities in certain technology businesses as reasons for renewed foreign interest.

The market’s performance in October provides some context. The Nifty 50 rose 1.9% and the Sensex gained 2.7% during the month. The Nifty IT index advanced 17.7%, while small- and mid-cap indices remained under pressure. There were declines of 4.2% in the Nifty Smallcap 100 and 3.4% in the Nifty Midcap 100.

The divergence suggests that the recovery was not evenly spread across the market. Foreign investors appeared more interested in selected large-cap and technology stocks than in taking broad positions across market segments.

Interest rates, valuations and domestic growth

The US Federal Reserve’s decision to hold interest rates, valuations in Indian large-cap stocks and expectations of continued domestic economic growth were also cited by market participants as possible reasons for the improvement in sentiment.

These factors matter because global investors compare returns and risks across countries. When US yields remain attractive, emerging markets can face pressure as capital moves towards dollar-denominated assets. Conversely, a more favourable view of interest rates, valuations or growth can encourage investors to reconsider their allocation to India.

Elevated crude oil prices remain a risk. Higher oil prices can increase India’s import bill, put pressure on inflation and affect corporate margins. The outlook for quarterly earnings and geopolitical developments will also influence foreign investment decisions.

SEBI moves to ease FPI compliance

Market returns are not the only consideration for overseas investors. The ease of entering, operating in and remaining invested in a market also affects their decisions.

The Securities and Exchange Board of India (SEBI) has taken steps during 2026 to simplify certain FPI processes, including accepting digitally signed powers of attorney from FPIs and introducing a framework for net settlement of funds for eligible FPI transactions in the cash market. SEBI’s net-settlement framework is scheduled to become operational in December 2026.

SEBI Chairman Tuhin Kanta Pandey has said the regulator was reviewing certain FPI compliance requirements and would issue a consultation paper to seek views on aligning them with global standards while retaining investor-protection safeguards.

This is a proposed review, not a completed relaxation. The consultation paper and any subsequent regulatory decisions will determine which requirements may change.

A further measure followed on 30th October, 2026, when SEBI issued a circular rationalising the periodicity of KYC reviews for FPIs. The revised framework provides for longer review intervals, depending on the FPI category and whether the jurisdiction is classified as high-risk. 

In specified cases, the review interval has been extended to eight years, while other categories will continue to have a two-year review cycle. The existing arrangements for government-securities-only FPIs and SWAGAT-FI FPIs remain unchanged.

The circular also removes the separate requirement for an FPI to intimate changes in previously furnished information at the time of continuation of registration. The revised provisions will take effect from 1st December 2026.

These steps can reduce recurring compliance work and make India’s market-access framework more convenient for eligible foreign investors. They are relevant to the longer-term investment environment, although the October 30 circular cannot explain buying that had already taken place earlier in the month.

Will the return of FPIs continue?

The late-October buying is an encouraging development, but it is too early to call it a durable reversal. October’s full-month equity outflow remained substantial, and the buying was concentrated in the latter part of the month.

Factors such as global interest rates, crude oil prices, the direction of the US dollar, corporate earnings and the relative performance of Indian equities against other markets will determine the next phase. The sustainability of the AI-related allocation shift will also matter.

The pattern of investment will be as important as the headline flow figure. A sustained return would be more convincing if foreign investors continued buying across several market segments and maintained their exposure over successive months. A brief increase in purchases of selected large-cap stocks may instead reflect tactical positioning.

For India, the task is therefore twofold: maintain the growth and earnings prospects that attract capital, while making market access and regulatory compliance more efficient for overseas investors.

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FAQs

October 2026 brought a change in the direction of foreign investment flows, but not yet a complete reversal. FPIs returned to buying Indian equities in the latter part of the month after substantial withdrawals in September and early October. Global allocation shifts and selective opportunities in Indian companies appear to have supported the recovery, while SEBI’s compliance measures may improve the longer-term investment environment.