Winning Bizness Desk

Mumbai.Foreign investors pull out Rs 20,974 crore from Indian equities in September amid global rate, crude oil and rupee concerns

Foreign portfolio investors (FPIs) have resumed selling Indian equities, withdrawing Rs 20,974 crore from the domestic stock market between September 1 and 18, according to CDSL data. The latest outflow comes after two consecutive months of buying, highlighting renewed caution among overseas investors.

Global uncertainty, elevated US interest rates and bond yields, rising crude oil prices and a weakening rupee against the US dollar have emerged as key factors behind the renewed selling. The combination has reduced the relative attraction of Indian assets for foreign investors.

FPI selling gains pace after two buying months

Foreign investors had bought Indian equities worth Rs 20,200 crore in July and Rs 29,630 crore in August. The trend, however, reversed in September, with investors pulling out more than Rs 20,000 crore in just the first 18 days of the month.

The broader 2026 picture is more significant. CDSL data shows that FPIs have withdrawn a total of Rs 2.45 trillion, or Rs 2.45 lakh crore, from Indian equities so far this year.

The 2026 outflow has already surpassed the Rs 1.66 trillion worth of selling recorded by foreign investors during the whole of 2025. Despite the heavy selling in the secondary market, foreign participation through initial public offerings (IPOs) has continued during September.

Three factors driving foreign investor selling

Choice Wealth Chief Investment Strategy Officer Dheeraj Gaur said three major factors are behind the latest selling pressure:

• Higher US interest rates and bond yields have narrowed the yield differential between India and the US.
• Brent crude has remained above $100 a barrel amid rising geopolitical tensions in West Asia.
• The rupee has weakened sharply against the US dollar, reducing returns for overseas investors.

US rates reduce India’s relative attraction

The US Federal Reserve has raised interest rates to 3.75-4.00%, increasing the appeal of US financial assets. As US yields rise, the gap between returns available in India and the US narrows, making Indian assets relatively less attractive to foreign investors.

For global investors, currency movements also matter. Even when an Indian asset generates a return in rupee terms, a sharp fall in the rupee can reduce the value of that return when converted back into dollars.

Crude oil and rupee add pressure

Brent crude has remained above $100 a barrel as geopolitical tensions in West Asia have intensified. Higher crude prices are a concern for India because they can increase the country’s import bill and add pressure on inflation.

The rupee has also weakened significantly against the US dollar. It recently recorded its biggest weekly decline in four months, falling 1.1% to around 95.92-95.96 against the dollar. During intra-day trading, it also crossed the 96 level.

Debt market also sees foreign outflows

Foreign investors have reduced their exposure to India’s debt market as well. During September, they have withdrawn Rs 10,296 crore through the Fully Accessible Route (FAR).

Additional outflows have been recorded through other investment routes:

• Rs 1,817 crore was withdrawn through the Voluntary Retention Route (VRR).
• Another Rs 1,068 crore was withdrawn through the General Route.
• Equity outflows during September stood at Rs 20,974 crore through September 18.

FAR allows wider access to government securities

The Fully Accessible Route is an RBI framework that allows foreign investors to invest in specified government securities without any investment limit. The mechanism provides overseas investors greater access to India’s government bond market.

Under the route, eligible government securities can be accessed by foreign portfolio investors without the usual investment ceilings applicable to other categories of debt investments.

VRR requires longer-term commitment from investors

The Voluntary Retention Route, meanwhile, allows foreign investors to invest in India’s debt market subject to certain retention requirements. Investors are required to keep a specified portion of their investment in India for a minimum period.

The latest debt-market withdrawals, along with equity selling, indicate that foreign investors are reassessing their exposure to Indian financial assets amid changes in global yields, commodity prices and currency conditions.

IPO flows offer a contrasting trend

Despite the sizeable selling from listed Indian equities, foreign investment through the primary market has continued in September. This creates a contrast between overseas investors’ approach towards new issues and their exposure to existing listed stocks.

Overall, the September data marks a reversal from the buying seen in July and August. With US yields, crude prices and the rupee continuing to influence global investment decisions, foreign flows remain an important factor for Indian markets.