Can India's strong economic growth and corporate earnings momentum bring back foreign investors into India equities? Even as Indian valuations have corrected after two years of largely flat markets, the trend of foreign investors selling Indian equities does not seem to abate. What’s the problem?
It’s increasingly one of relative returns. A global rise in the cost of capital has narrowed the advantage Indian assets once offered, while currency risk has made the investment case harder to justify.
Now, elevated crude oil prices are adding a tactical twist to this structural shift. For an economy that imports most of its oil requirements, a sustained rise in crude increases the current account burden and can put pressure on the rupee. That, in turn, threatens to erode the returns foreign investors earn on Indian assets.
The combination is showing up in capital flows. Foreign portfolio investors have withdrawn ₹3.04 lakh crore from Indian equities in 2026, exceeding the ₹1.66 lakh crore pulled out during the whole of 2025. The selling has continued into October, with net outflows of ₹44,166 crore so far, following withdrawals of ₹35,861 crore in September.
The scale of the withdrawals suggests that India's challenge is not simply a temporary bout of risk aversion. The country is facing a structural shift in the economics of global capital allocation, compounded by a more immediate external shock in the form of high oil prices.