FPIs Are No Longer The Driving Force Of The Stock Market
FPIs have been an integral part of the Indian stock market ever since they were allowed to operate from 1991 to 92 onwards. They have generally been bullish about the Indian economy, as seen by the total assets under custody of $735 bn as of March 2026. The importance is felt, as often movements in the stock indices have been associated with their net inflows. On the debt side, the interest in…
Foreign Portfolio Investors (FPIs) are no longer the primary drivers of the Indian stock market, despite their continued importance in the capital account. Total assets under custody of FPIs reached $735 billion as of March 2026, but their net inflows for the first seven months of the year were negative at -$11.8 billion, with equity outflows of -$16.9 billion.
The outflows were particularly concentrated in sectors such as financial services, oil and gas, auto, FMCG, telecom, and power. This shift in investor interest can be attributed to several factors. First, global central banks have rolled back on easy liquidity, reducing the overall supply of investible funds. Additionally, higher interest rates in Western markets make debt investments more attractive compared to Indian bonds, which have a lower yield.
Furthermore, the better-than-expected economic growth in Western markets has led investors to seek opportunities in those markets. Another factor is the improved performance of domestic institutional investors (DIIs), who have now taken over the role of FPIs. DIIs, including mutual funds, insurance companies, pension funds, and alternative investment funds, have shown significant interest in specific sectors, leading to a higher correlation between stock price movements and DII activity.
The withdrawal of FPIs has also had an impact on the rupee's exchange rate, as their departure has weakened the balance of payments. Strengthening the capital account, however, remains an important consideration for policymakers, as it can help stabilize the rupee.
Written by urgent.news from Free Press Journal's reporting — not their text. Machine-written — may contain errors; check the original before relying on it.
