The September 2026 gross SIP contribution at ₹32,490 crore is a record. But even as the retail investor continues to buy, the foreign investor continues to sell. Are we missing something that the foreign investor can see? After all, FPIs have sold an aggregate of roughly ₹2.6 lakh crore (Source: NSDL) this calendar year till September end, and domestic mutual fund equity oriented flows for the same period are positive at roughly ₹2.73 lakh crore – certainly looks like the retail investor may be buying what the FPI is selling. But the larger picture lies in the details.
Equity market returns are volatile in the short term – the Nifty 50 index was down to its lowest close at 22,231 (October 8) in 18 months, around 15% below peak. Staying invested matters. But the question isn’t whether we should follow FPIs or be contrarian, rather, ask if your investment portfolio is built to handle this volatility before your patience runs out?
“Foreign investor selling is not unique to India. FII money is being pulled out of emerging market thanks to the higher bond yields in the US after the recent Fed rate hike. For the longest time US government bond yields were low and taking risk was needed to maintain a certain level of absolute return. So, emerging markets were getting higher allocations from long term funds like pension funds; this asset allocation is now changing,” says Deepak Shenoy, founder, Capitalmind Financial Services.
Nifty 50 delivered a compounded annual return of around 12.5% from April 2022 till March 2024, when the underlying earnings grew roughly 13.5%. In the two years that followed, Nifty 50 stayed flat–from 22,462 in April 2024 to 22,331 in March 2026–and earnings growth for the period for its underlying firms has also slowed down to roughly 7%-8% (NSE PE data used to derive earnings growth).
FPIs saw earnings slowing while valuations remained elevated—one potential factor that led them towards selling. For long term investors, interim volatility, driven by foreign investor selling or otherwise, can unknowingly present an opportunity to audit the portfolio and rebalance it with the ability to weather storms.
“Global investments are usually benchmarked. Which means for foreign investors it’s about investing in a geography and they do that by buying the index or the stocks in the benchmark index. At the same time, while foreign investors are net sellers, they are also buyers in small and mid-cap stocks because of better earnings and subscribers to Indian IPOs because of higher growth potential. But if other emerging markets are performing better at the index level, there is no option for foreign investors but to move so that they don’t underperform their benchmark,” says Naveen Gogia, MD and founder, Creed Capital.
So far this year, despite being net sellers, FPIs have bought roughly ₹56,000 crore worth in the primary market. Keep in mind, you are buying equity for long-term wealth creation, and foreign investors are buying into short-term valuations, which can fluctuate, prompting quick shifts in geographical allocations.
Audit your own equity portfolio to see how much overlap there is for such large cap stocks. If you own higher proportions of index linked stocks that foreign investors are selling, your portfolio is likely to feel bigger bumps during this correction. Ultimately though, prices follow earnings in the long run and the recent selling has made valuations relatively cheaper. Sticking to good quality equity stocks and funds is most likely the path to walk for consistent wealth creation.
When the rupee falls or loses value against the dollar, foreign investors look to sell rupee assets. This happens because they must convert their rupee return back to dollars and they get fewer dollars than they began with. Also, when FPIs sell Indian equities, they sell rupee assets and the rupee value takes a beating. It’s a vicious loop. If your portfolio is tilted towards rupee denominated equity assets, the downside could be relatively higher. This calendar year the rupee depreciated roughly 6.5% against the dollar.
Being diversified across assets can help to build portfolio resilience.
“Diversification can look different for each portfolio. For very small investors, geographical diversification may not be possible due to the amounts not being meaningful. For asset allocation to work, money you need in the short term – a year or two – should not be in equity at all,” says Shenoy
A diversified investment portfolio is likely to have lower volatility during an equity market correction. Hold gold via the exchange traded fund route and consider investing in a diversified international fund for non-rupee denominated goals like overseas travel or education. Plus, consider a stable return cushion for the short term.
Had you invested ₹10,000 through an SIP every month from November 1, 2025 till October 1, 2026, ie for one year, in the Nifty 50, you would have lost roughly 8% absolute as the markets corrected and the index value declined. Alternatively, if you had taken the same amount of money and invested the entire lumpsum of ₹1.2 lakh in November 2025, you would have lost close to 12%-13% absolute value in the same period.
The excess loss in the second scenario happens because you didn’t have the advantage of buying more units at lower prices. Although staggering doesn’t guarantee higher returns, it cuts the risk of investing everything at the top. Any incremental investing in equity or rebalancing of portfolio is ideally done with a staggered approach either through systematic investment or systematic transfer plans.
“At the start of the year, AI linked stocks in South Korea were being chased by investors and now that market is correcting. Does this mean the AI story is over? Truth is, narratives can turn around very fast in equity markets. FPI selling may accurately reflect current pessimism, but doesn’t reliably predict returns going forward. Whenever large cap stocks start delivering better earnings, foreign investors could return as fast,” says Gogia.
Do your portfolio audit first and then decide if you need to be distracted by the current FPI selling. After the recent correction, large cap stock valuations are cheaper. And IMF recently increased India’s growth forecast from 6.4% to 7% GDP, mostly citing stronger momentum, resilient domestic demand and robust services. This should support corporate earnings.
Foreign investors sell for a variety of reasons: global uncertainty, US government bond yields rising, a stronger dollar, better valuations in some other emerging market equities and so on.
Your reason for selling a good quality equity portfolio ideally should be that you are closer to your goal timeline. Alternatively it could be that you are rebalancing and switching to a different fund manager or strategy.
Lisa Pallavi Barbora is a freelance writer and author of Money & Her