Foreign institutional investors have pulled roughly $29.3 billion out of Indian equities between March and June 2026, while net inflows since mid-June have barely topped $3 billion. The imbalance keeps Dalal Street under pressure and signals that a full-scale FII comeback is still a ways off.

What triggered the outflow?

Elara Securities tracked outflows in 82 percent of trading sessions, amounting to $32 billion in total net sales.

Valuation gap without momentum

India’s price-to-earnings (P/E) multiple relative to the broader emerging-market basket fell from 1.73 times in June 2025 to 1.30 times. A cheaper valuation would normally entice foreign money, but investors want more than a price tag. Elara points to two missing pieces: a slowdown in the U.S. artificial-intelligence rally and a clear lift in Indian corporate earnings. Without either, FIIs are likely to stay on the sidelines, making only isolated, contrarian bets rather than large-scale allocations.

The U.S. yield squeeze

When markets turn risk-off, capital rushes to U.S. Treasury bonds. The 10-year Treasury now yields about 4.5 percent, narrowing the spread to Indian government bonds to roughly 220 basis points. After accounting for the cost of hedging rupee exposure, the implied risk premium turns negative at 3.03 percent. In plain terms, a hedged foreign investor would earn less on Indian assets than on a safe-haven U.S. bond. History shows that such a “risk-off” cycle can linger for three to four quarters before equity appetite returns.

The “dollar asset” pull

Recent comments from Federal Reserve officials have shifted market expectations from rate cuts toward possible rate hikes. A stronger dollar and firmer Treasury yields reinforce the so-called “dollar asset trade,” where investors pile into U.S. equities and debt at the expense of emerging-market alternatives. That dynamic siphons liquidity that might otherwise have flowed into India, keeping the pool of foreign capital thin.

Tech funds concentrate on America

Sectoral flows add another layer of pressure. Global technology money fell from $191.5 billion in Q4 2025 to $81.7 billion in Q2 2026, and the remaining flows are increasingly U.S.-centric. In June 2026, U.S. tech funds attracted $16.9 billion on a rolling four-week basis, while technology funds outside the United States posted net outflows of $4.4 billion, led by China and South Korea. The concentration of tech capital in the U.S. leaves Indian tech-heavy stocks with fewer foreign buyers.

What to watch next

  • U.S. rate trajectory:
  • Corporate earnings reports:
  • Policy signals:
  • Tech-fund allocations: