FIIs Are Selling India — Should Long-Term Investors Be Worried or Excited?

Introduction

Let me start with a number related to FII selling in India.

“Rupees One lakh four thousand crore (Rs. 1,04,000 Crore).”

That is how much foreign investors (FIIs) have sold from the Indian stock market in just the first two and a half months of the year 2026.

Another number. “In just the first nine trading sessions of March 2026, FII’s have pulled out almost 57,000 crore rupees.”

Meaning, out of those Rs. 1.04 Lakh Crore, almost 55% selling was done in the 9 days of March alone.

Now, it’s natural to worry about our investments when we see FIIs selling so much in India.

We start thinking, if these big foreign funds, which have entire research teams, who have access to information that we don’t, if they are running away from India, should I be worried? Should I also sell? Is this the beginning of something very bad?

And that is exactly what I want to talk about today.

Should FII selling worry us or excite us as a long-term investor?

I’ll say, “the way most people think about FII selling” is not exactly how this action should be interpreted.

Perhaps, we often comprehend FII selling as the Indian market becoming weak, but most of the time it is not like that.

Allow me to explain what goes on behind the scenes that triggers FII selling. 

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Let’s First Understand What FIIs are

First, let me quickly explain what FIIs are for those who are new to the stock market.

Foreign Institutional Investors (or FIIs) are large global institutions.

These are organisations like: Goldman Sachs, BlackRock, Morgan Stanley, Or Big hedge funds, Or Pension funds from America and Europe.

These are not individual investors sitting at home. These are giant organisations that manage lakhs of crores of rupees on behalf of their own clients.

Now, these organisations invest money across many countries. India is just one of many markets they look at.

On any given day, they can be investing in India, Brazil, Taiwan, China, or Bangladesh. They pick a country depending on where they see the best opportunity for their money.

And here is why FII activity matters for us, because when they think they should pull out of India and invest elsewhere, it affects our market because they trade in huge volumes.  

As of early 2026, FIIs hold roughly about 20% of the total market capitalisation of companies listed on the NSE.

That is a very big number, right? When they start selling even a small percentage of this holding, it creates a lot of selling pressure in the market. Prices fall. Indices fall.

And we retail investors get worried seeing RED in our portfolio and in the headline indices like Nifty, Sensex, Bank Nifty, etc.

Let’s understand the impact of FII selling from this data:

• A 1% shift in FII allocation towards or away from India can move the Nifty by 3 to 5%.
• So you can imagine what happens when they sell consistently for weeks and months together.

But here we must also understand why they are selling right now? This is very important to understand because the reason behind the selling matters a lot.

WHY ARE FIIs SELLING INDIA RIGHT NOW?

There are multiple reasons why FIIs decide to sell their holdings in any country.

This time, for India, the following reasons are working, and they are all connected to each other.

Let me explain each one to you:

The first reason is global interest rates, specifically in America:

For the past couple of years, the US Federal Reserve kept interest rates very high — at levels not seen since 2007. When rates in America are high, investing in US government bonds becomes very attractive. FIIs get a good, safe return without taking any risk. So naturally, global money starts flowing back to America, away from emerging markets like India.

You can think of it this way: If you can earn 12% returns from your bank fixed deposits and your share market is also giving you 12% returns, would you care to invest in the stock market? No, right?

In the same way, when US bonds themselves can give 5-6% returns, FIIs would not take the risk of investing in stocks of another country. When US rates become high, India becomes relatively less attractive for FIIs.

The second reason is geopolitical tensions and uncertainty:

In the last 12 months, we have seen significant conflicts and trade tensions all across the globe. Trump’s tariff policies have created a lot of uncertainty.

There is tension in West Asia due to the Iran war. As a result, oil prices have gone up sharply.

All of these issues are only creating a risk-averse environment for global investors. When there is uncertainty, big investors pull money out of what they consider as a risky place to keep their money, and one such example is emerging markets like India. They pull out money from India and park it in safer assets like US bonds or US stocks.

We must keep in mind that India, despite being a fourth largest economy of the world with a size of over 4 Trillion Dollars, is still classified as an emerging market.

So, India will feel the heat every time FIIs read the environment as “uncertain” or “risky.”

The third reason is the Indian Rupee depreciation.

For a foreign investor, their returns are not just about how much the stock price goes up. They also care about the currency.

If the rupee falls against the dollar, their returns in dollar terms reduce.

The Indian rupee has weakened significantly — it touched around 93 to the dollar, which is a record low.

• In Jan-2022: The INR was at 74.5 levels
• Today in March 2026, the INR is at 93.69 levels

In the last four years alone, the Rupee has depreciated by about 25%. That is a CAGR loss of about 5.57% for global investors. It means that when a foreign investor calculates their returns after converting back to dollars, a big chunk of their gain (about 5.57% per annum) is eaten up by currency loss.

This kind of loss forces some of the FIIs to decide that it is better to exit the country whose currency is depreciating so fast.

The fourth reason is India’s own corporate earnings story

Corporate earnings growth in India has been below expectations in 2025. Many large companies did not deliver the profit growth that analysts expected.

When profits disappoint, stock valuations start looking expensive.

Though FIIs are not very valuation-conscious, I think, but when they see a higher valuation due to profit decline, they start selling.

The fifth reason is surely competition from China.

In late 2024 and into 2025, China introduced aggressive stimulus measures to revive its economy.

Also, at that time, Chinese stocks were also very cheap compared to Indian stocks.

• The PE ratio of Chinese markets was around 12 times,
• India’s Nifty was trading at around 21-22 times earnings.

So FIIs saw an opportunity to buy Chinese stocks at cheaper levels as compared to expensive Indian stocks.

It is important here to understand that what FIIs are doing is “reallocation” – we cannot say that they are selling because they have lost faith in India.

Sensitive people and track FII action in the Indian stock market must also note a new phenomenon that has been building over the last 4-5 years in the Indian market.

Why I want you to know this is because these days, we cannot just focus on FII action without acknowledging the fact that has changed the Indian markets fundamentally over the last 2 to 5 years.

I’m talking about the Action of Domestic Institutions Investors (DIIs)

Effect of Domestic Institutions Investors (DIIs)

In 2025, FIIs sold a record amount of Indian stocks, about 1.66 lakh crore rupees, which was the highest FII outflow ever

In the same period when FIIs were selling, the DIIs bought stocks worth 7.44 lakh crore rupees. Almost 4.5 times more than what FIIs sold.

This kind of gap between FII and DII’s action is unprecedented in the Indian stock market.

Just to explain to the new investors who are DIIs:

• These are Indian mutual funds, Insurance companies like LIC, and pension funds like EPFO.

They invest the SIP money contributed by crores of ordinary Indian investors like you and me.

The Monthly SIP inflows in India are now consistently above 29,000 to 30,000 crore every single month. This kind of money is coming each month from Indian households.

The best thing about this SIP money is that it does not panic; it does not look at global events.

It just keeps coming month after month.

Now, let me explain why I said this kind of gap between DII and FII action is unprecedented:

• Let’s see what happened in 2008, during the global financial crisis. Back then, such a big domestic cushion was not there. So, when FIIs sold, there was no one to buy on the other side. Hence, the Nifty fell by 60% from its peak.
• Something similar happened in 2020 as well. In March 2020, during COVID, FIIs pulled out nearly 62,000 crore rupees in a single month. It caused the Nifty to crash by 38% in just a few weeks. Again, there was fear and panic.

Yes, the markets crashed in 2008 and 2020, but they also came back strongly.

• After the 2008 crash, the Sensex recovered from the lows of 8,000 points to a new high of 21,000 points in about 24 months.
• After the COVID crash of March 2020, the Sensex recovered from the lows of 25,000 points to a new high of 50,000 in just 18 months.

But notice the difference in the Nifty 50 and Sensex in 2025 and 2026.

Despite the record FII selling, the Nifty has corrected, yes — but it has not crashed the way it did in 2008 or 2020.

And why it happened is because our DII acted as a genuine shock absorber.

The market structure has changed. India is no longer as dependent on foreign money as it used to be.

Some data says that, in terms of market capitalization, Domestic investors like DIIs, retail investors, and HNIs together hold over 27%, while FIIs hold less than 20% of all listed stocks in India.

This is a historic shift in how our stock market has evolved in the last 4-5 years.

Now that we have understood that we are not as dependent on FII flows as we used to be in 2008 or 2020, it’s time to understand the fundamentals of India as an investing destination.

This is what FIIs also see when they take investment action in favour or against India.

WHAT DOES INDIA’S FUNDAMENTAL ACTUALLY SAY?

Now, let’s talk about India’s economy and whether the country’s fundamentals justify a long-term investment approach.

• India’s GDP growth for the financial year 2026 is estimated at around 7.5%.
• This makes India the fastest-growing major economy in the G20 nations.
• America, China, Europe — no country is growing as fast as India.

This is the foundation that is keeping India on the radar of every serious investor (global or domestic).

Corporate earnings are showing signs of recovery as of Q3 FY26-27. Nifty 50 companies have also reported an EPS growth of 13.4% in the third quarter. This was actually better than what analysts were expecting.

For the broader BSE 500 companies, the EPS growth was around 12%. Earlier, this growth number was 7.5%.

Going forward, considering the situation of the US-Iran war and its impact on Oil prices, for sure, the Q4 FY2026-27 and Q1 FY2027-28 earnings will suffer.

But once the war scenario becomes less tense, earnings growth can revive.

As of now, on the valuations front, there is good news.

• After the recent correction, the Nifty 50 is now trading at a forward PE of around 20 to 22 times earnings.
• That is right at the 10-year historical average.

So we can say that our market is no longer expensive.

• Large-cap Indian stocks look fairly valued.
• Mid-cap and small-cap stocks still carry some risk of valuation correction. Many of these companies are trading at 26 to 28 times earnings, which I think is still high, but this is also where the opportunity exists. If the market rebounds for whatever reason, these same quality Mid and small-cap stocks start trading at 35-40 PE levels.

The Reserve Bank of India (RBI) has also been cutting interest rates.

This also has a positive effect on the Stock Market. But for now, I think lower interest rates should not be in the RBI’s agenda.

With gas and oil prices set to rise, if the RBI can keep the interest rates as they are, that alone will be a boost for the Indian markets. Moreover, as Indians get more affluent, they will have more spare money that they can use to further boost the GDP.

But this narrative is not for the next 2-3 years alone, it will keep lifting the Indian GDP for at least the next 20-30 years.

So I think the long-term case for Indian equities is not just intact. It will actually get stronger in the next few decades.

Now, let’s come back to our core point of FII selling.

WHAT HISTORY TEACHES US ABOUT FII SELLING

This is very important for long-term investors.

Every single time FIIs have sold heavily in India, it has eventually reversed. Every single time – no exception.

Let me give you the data.

• In the 2008 Global Financial Crisis, FIIs withdrew about 41,000 crore rupees. The Nifty fell nearly 60%. But investors who bought during that fearful time made 162% returns in just two years as the market recovered.

• In 2013, when the US Federal Reserve hinted at reducing liquidity, FIIs pulled out about 15,000 crore rupees. The market fell 12%. And then recovered in the next 12 months.

• During demonetisation in 2016, FIIs sold about 23,000 crore rupees. The market fell 8%. Then recovered.

• During COVID in March 2020, FIIs sold 62,000 crore in one month, the market crashed 38%, and then recovered again.

So you can see, the pattern is very consistent. FII selling creates short-term pain, but India’s economy keeps growing. Companies keep earning profits. And the result is, when the market rebounds, it does it so strongly that it goes on to touch new highs (every time).

So, how can we, as long-term investors, actually use this information?

WHAT SHOULD A LONG-TERM INVESTOR ACTUALLY DO?

For a long-term investor with a 5 to 10 year horizon, periods like this are not a time to panic.

They are a time to think clearly and invest wisely.

We can follow the following principles:

• The first principle is very simple. Continue your SIPs.
• The second principle is: focus on large-cap quality stocks and funds. Be more careful with mid-caps and small-caps.
• The third principle is: look at sectors where revenue and profit visibility is clear (like banks, quality NBFC’s, auto, healthcare, etc).
• The fourth principle is: do not confuse short-term price movements with long-term business quality. We must remember that when a stock falls 30% because FIIs are selling, the underlying business has not changed.

The thing is, when prices are falling, and it looks like the world is a scary place, that is precisely when serious investors are quietly accumulating quality stocks.

That is how real wealthy people have built their wealth.

WHAT COULD BRING FIIs BACK TO INDIA?

When FII’s come back to our markets, the market will rebound faster than ever before.

Why? Because in the last 2-3 years, they have sold heavily in India.

So what are the triggers that I think can bring FIIs back to India:

• The most important trigger is a clear and sustained recovery in corporate profits. This will work like a huge FII magnet.  
• The second trigger is a resolution of the US-Israel-Iran war and clarity about US tariffs on India.
• The third trigger is stability or our INR. This will happen only when interest rates in the US start falling. If US rates start falling, the relative attractiveness of US bonds will reduce, and then the money will start flowing back to emerging markets like India.

CONCLUSION

FIIs have indeed been selling Indian stocks like cats and dogs in recent few months.

But thanks to our domestic investors, otherwise we would have been much worse. So should we be worried?

If you are a short-term trader, maybe yes — there can be more volatility.

But if you are a long-term investor: Someone with a 5 to 10 year horizon, Someone who understands that building real wealth takes time and patience. 

This is not a time to panic. This is a time to think clearly and invest wisely.

As Warren Buffett famously said — Be fearful when others are greedy, and greedy when others are fearful.

Right now, there is plenty of fear around Indian equities. A long-term investor knows what to do with that.

So what am I doing now? I’m slowly accumulating quality Indian stocks.

Happy Investing.