Foreign Portfolio Investors (FPIs) continued to reduce their exposure to equities in India in early June, withdrawing around Rs. 42,927 crore in the first week of June alone. Data from the National Securities Depository Ltd (NSDL) has shown that FPI equity outflows for 2026 have now exceeded the net outflows in 2025, which amounts to Rs. 1.66 lakh crore.
The data shows a change in capital allocation, with investors being more attracted to technology and artificial intelligence (AI) opportunities than emerging market equities.
The outflows are driven by the fast-moving investment themes around AI. Investors have moved capital from emerging to developed markets on the back of strong performance in tech stocks, especially in the AI space.
“Apart from higher US yields and dollar strength, global investors are also reallocating capital towards some of the largest technology and AI-related public market opportunities currently emerging globally,” Rajesh Singla, Founder of Alpha AMC, told PTI.
The expected SpaceX IPO has attracted investors around the world. SpaceX is reportedly targeting a valuation of $1.75 trillion and is aiming to raise around $75 billion, according to Reuters.
Experts believe that, in the near term, such massive opportunities are diverting liquidity from the emerging markets, India included.
The steep devaluation of the Indian rupee has also made the investment proposition unfavourable for foreign investors.
In 2026, the currency has weakened by nearly 6% and in the last year by about 10% against the dollar despite the intervention by the RBI from the mid-80s to the current rate of around Rs. 95.5.
This currency devaluation weakens the dollar-denominated returns, leading to a cycle of equity outflows, adding further pressure on the rupee and dampening interest in fresh foreign investments.
The government has recently announced tax exemptions on interest income and capital gains from certain government securities, while the RBI kept the repo rate at 5.25%, rolled out several measures, and introduced measures including concessional forex swaps and support for FCNR deposits.
These initiatives seem to help sustain debt flows. In the first week of June, FPIs invested a total of Rs. 2,600 crore through the Fully Accessible Route (FAR), bringing their total debt investment to Rs. 17,230 crore in 2026.
Also Read: Top 10 Fastest-Growing AI Startups to Watch in 2026
“A sustained revival in FPI inflows would depend on a moderation in the global AI-driven investment theme,” V K Vijayakumar, Chief Investment Strategist at Geojit Investments, told PTI.
“There are early signs of this happening. The sharp decline in the Nasdaq on June 5 indicates that the AI trade may be losing momentum. If the AI-driven rally cools and reverses, it could trigger a reversal in FPI outflows from India,” he added.