Foreign investors pulled Rs 41,000 crore from Indian markets in 8 days, causing Nifty to fall 14% in 2026. Dr. V K Vijayakumar said, “From the FPI perspective, FPIs pulling money out of India is rational since the risk-free return from the 10-year US bonds is above 5.2%.” High yields drive this.
What is striking is this outflow is being seen amid a significantly strong earnings performance. India’s GDP growth has been relatively resilient. Most market observers believe that this massive outflow is one of the main reasons why the Indian market is underperforming this year. Nifty is down 14% so far in 2026.
3 big reasons why FII selling has gained momentum
Are you also wondering why FIIs are selling? What’s the big and most importantly are there any indications that can signal when this could stop?
US 10-year Treasury yield spikes above 5.2%
The global markets are witnessing a once in a life-time kind of situation. The US Treasury yields, both the 10-year paper and the 30-year paper are at the highest levels since 2002. The High yield does not just showcase investor apprehension.
In the current situation, they have also made returns on US assets significantly more attractive compared to their EM peers.
Dr. V K Vijayakumar, Chief Investment Strategist, Geojit Investments explained how “From the FPI perspective, FPIs pulling money out of India is rational since the risk-free return from the 10-year US bonds is above 5.2%. So long as the US bond yields remain elevated, FPIs will continue to sell. The scenario will change when the valuations become attractive and the risk-reward ratio turns favourable for investment.”
Another key market expert, Deven R Choksey, Founder and MD of DRChoksey Finserv corroborated the point and explained that “the key question is, why should global investors allocate to India when US assets offer higher yields and global markets provide alternative growth opportunities?”
According to him, “India’s answer has to be superior earnings growth + structural economic growth +policy stability + improving corporate balance sheets.”
Dollar Index at 52-week highs above 102
What is further enhancing the appeal of dollar-denominated asset classes is the Dollar Index levels. It is currently hovering above 102. This is a fresh 52-week high for the Dollar Index. Essentially, the Dollar Index, which measures the greenback’s strength against a basket of six currencies, is hoovering around the 18-month peak it scaled last week.
As a result, this is making returns on dollar denominated assets significantly more attractive for the foreign institutional investors.
Brent Crude & Indian import basket spike past $100
The other big worry for a primarily crude-importing nation like ours is the current crude prices. Brent rates are hovering near $105 per barrel levels.
What’s further exacerbating the concerns is that “Shipping and insurance costs are keeping Indian crude basket import costs high. As against a Brent future for Dec level of $102-105, spot Indian basket stay at $120 plus. India has done well in ensuring there is no shortage, but global prices and geopolitical risk remain a grim challenge to the Indian fiscal,” explained market veteran Ajay Bagga.
This is also weighing on investor sentiment significantly.
Future perfect but present tense
Though most market experts believe that India’s earnings performance, resilient growth and relative valuation would make a case for significant investment in the longer terms, the near-term pressure is expected to continue. They pointed out that for now, FIIs may continue to bet more on dollar-denominated assets for risk-free higher returns.