Foreign portfolio investors ended a two-month buying streak in September, selling Indian equities worth 256.62 billion rupees ($2.7 billion), their highest monthly outflow in six months, as rising oil prices and elevated bond yields eroded the appeal of Indian assets.
The Nifty 50 and Sensex each fell about 5.7% in September, while FPI outflows for 2026 reached $26.75 billion as of September 29, according to data from the National Securities Depository Ltd, putting foreign investors on track for record annual withdrawals.
Beyond higher crude prices and tighter global monetary policy, FPIs have also shifted capital towards AI-heavy markets such as South Korea and Taiwan, contributing to record annual outflows from Indian equities.
The selling reflects a tougher global allocation environment. Higher US Treasury yields raise the risk-free return available to investors, making emerging-market equities relatively less attractive.
A prolonged high-rate regime also raises funding costs, constrains global liquidity, and encourages investors to favour dollar assets over riskier markets. Hawkish Federal Reserve commentary and stronger-than-expected US economic data have reinforced expectations that rates may remain higher for longer.
Oil has added a domestic vulnerability to that global pressure. India is a major crude importer, so higher Brent prices widen the current-account deficit, raise inflation risks and increase pressure on the rupee. They can also squeeze corporate margins, particularly in fuel-intensive industries, and complicate the Reserve Bank of India's policy choices.
"Oil and geopolitics remain the major risk," said Dheeraj Gaur, chief investment strategy officer at Choice Wealth. "Elevated crude prices are particularly a challenge for India because of their immediate impact on the current account, inflation expectations and the rupee."
Currency risk is central for foreign investors. A weaker rupee reduces dollar-denominated returns even when domestic equity performance remains attractive in local-currency terms.
"Even if Indian asset returns remain attractive in rupee terms, depreciation can materially reduce dollar returns," Gaur added.
