Corporate Earnings Revival May Bring FIIs Back in 2026; December Selling Crosses Rs 22,100 Crore

New Delhi: Strong GDP growth and expectations of improved corporate earnings next year are likely to pave the way for positive foreign institutional investor (FII) inflows in 2026, analysts said on Saturday, even as net FII selling in December crossed Rs 22,130 crore.

Foreign institutional investors have sold shares worth Rs 1,58,407 crore so far in calendar year 2025, marking the heaviest selling since FIIs began investing in Indian equities. Despite the sharp outflows, analysts believe there are early signs of a potential reversal driven by macroeconomic strength and better earnings visibility.

“As the year 2025 draws to a close, FII selling in India is on track to set a new record in outflows,” said Dr. V.K. Vijayakumar, Chief Investment Strategist at Geojit Investments Ltd.

He pointed out that in 2024, FIIs sold equities worth Rs 1,21,210 crore through exchanges, but overall net inflows remained positive as they invested Rs 1,21,637 crore via the primary market. In contrast, 2025 has witnessed massive net selling, making it a particularly challenging year for foreign flows.

Analysts noted that sustained FII selling has significantly contributed to the sharp depreciation of the Indian rupee this year. However, an improvement in economic fundamentals is expected to attract net FII inflows in 2026.

They further said that persistent FII outflows, coupled with a high trade deficit, played a major role in weakening the rupee during 2025. The currency has depreciated by around 5 per cent on an annual basis and slipped marginally on Friday amid a recovery in crude oil prices.

Meanwhile, net foreign direct investment (FDI) in India nearly doubled to $6.2 billion during April–October, compared to $3.3 billion in the same period last year, according to an official statement. The increase was largely due to lower repatriation of foreign capital, despite a rise in outward FDI.

Gross inward FDI rose marginally to $58.3 billion during April–October, up from $50.5 billion a year earlier. Repatriation of foreign capital declined to $31.65 billion from $33.2 billion in the corresponding period.

A recent report by Emkay Global Financial Services said continued weakness in the rupee could keep foreign portfolio investors (FPIs) on the sidelines, with a return expected only after the currency stabilises for a sustained period of one to two months. The report also noted that FPIs remain heavily skewed towards large-cap stocks, with a strong overweight position in financials.

—With inputs from IANS