Foreign investors remained sellers in Indian equities, dumping more than Rs 62,853 crore of shares in the first fortnight of June amid heightened geopolitical tensions, concerns over global economic growth and persistent weakness in the rupee.

With the latest outflows, total withdrawals by Foreign Portfolio Investors (FPIs) from Indian equities have surged to Rs 2.87 lakh crore so far in 2026, surpassing the Rs 1.66 lakh crore pulled out during the entire calendar year 2025, according to data from the National Securities Depository Ltd (NSDL).

Pabitro Mukherjee, Deputy Vice President-Research at Bajaj Broking, said FPI flows in the coming week will depend on developments in the US-Iran peace talks, the US Federal Open Market Committee’s policy decision, the Bank of Japan’s rate decision and commentary from major central banks.

According to NSDL data, FPIs have remained net sellers in every month of 2026 except February. They withdrew Rs 35,962 crore in January before turning net buyers in February, investing Rs 22,615 crore, marking the highest monthly inflow in 17 months.

The trend, however, reversed sharply in March, when foreign investors pulled out a record Rs 1.17 lakh crore. The selling pressure continued in April with net outflows of Rs 60,847 crore and in May with withdrawals of Rs 32,963 crore. In June, FPIs have already withdrawn Rs 62,853 crore during the first two weeks of the month.

Himanshu Srivastava, Principal, Manager Research, Morningstar Investment Research India, said investors continue to navigate an environment marked by elevated uncertainty around the interest-rate trajectory of major central banks, geopolitical developments and concerns over global growth.
“In such phases, emerging markets often witness tactical de-risking as investors seek safety and rebalance portfolios towards developed markets and defensive assets,” he said.Srivastava added that India’s relatively rich valuations compared with several emerging-market peers may also have prompted foreign investors to adopt a more selective approach towards allocations.

Market participants said the persistent depreciation of the rupee has emerged as another key factor behind the sustained outflows.

The Indian currency has weakened nearly 6 per cent so far in 2026 and around 10 per cent over the past year, falling from the mid-80s level to about 95 against the US dollar despite efforts by the Reserve Bank of India (RBI) to stabilise the currency.

However, the pace of FPIs outflows moderated significantly in the latter half of last week, indicating that while risk aversion remained elevated, the intensity of foreign selling eased gradually.

On Friday, FPIs sold equities worth only Rs 1,082 crore in the cash market.

V K Vijayakumar, Chief Investment Strategist at Geojit Investments, said recent geopolitical developments and expectations of a peace agreement between the US and Iran have resulted in a sharp correction in Brent crude prices to below USD 87 per barrel.

“For a large oil importer like India, this is a significant positive. India is facing a balance of payments deficit of about USD 60 billion in FY27,” he said.

Given the importance of foreign portfolio flows in financing the current account deficit and supporting the balance of payments, policymakers have announced a series of measures aimed at attracting overseas capital.

These include the RBI absorbing hedging costs on FCNR deposits mobilised by commercial banks, expanding the forex swap window, increasing access to government bonds through the Fully Accessible Route (FAR), and raising investment limits for non-resident Indians and overseas citizens of India in domestic equities.

In contrast to the equity outflows, FPIs invested more than Rs 13,200 crore in debt securities through the FAR route during the first fortnight of June, taking total investments through this channel to nearly Rs 28,000 crore so far this year.

The combined market valuation of eight of the top-10 most valued firms surged by Rs 1.90 lakh crore last week, with ICICI Bank stealing the show, in tandem with a rally in equities.

Last week, the BSE benchmark Sensex jumped 1,284.61 points, or 1.73 per cent, and the NSE Nifty surged 256.2 points, or 1 per cent.

“Indian equity markets ended a volatile week on a strong note, snapping a two-week losing streak amid improving global sentiment and supportive measures from the Reserve Bank of India (RBI) aimed at attracting foreign currency inflows,” Ajit Mishra, SVP, Research, Religare Broking Ltd, said.

Investor confidence improved on optimism surrounding a potential US-Iran peace deal, which raised hopes of easing geopolitical tensions and stabilising energy markets, he added.

From the top-10 pack, Reliance Industries, HDFC Bank, Bharti Airtel, ICICI Bank, State Bank of India, Bajaj Finance, Larsen & Toubro and Hindustan Unilever were the winners, while Tata Consultancy Services (TCS) and Life Insurance Corporation of India (LIC) faced erosion from their market capitalisation (mcap).

ICICI Bank added Rs 56,223 crore, taking its valuation to Rs 9,61,297.77 crore.
HDFC Bank’s market valuation jumped Rs 38,571.11 crore to Rs 11,89,314.42 crore, and that of State Bank of India surged Rs 36,137.87 crore to Rs 9,38,661.50 crore.The valuation of Bajaj Finance rallied Rs 18,366.57 crore to Rs 5,71,947.54 crore and that of Bharti Airtel climbed Rs 14,380.14 crore to Rs 11,10,530.63 crore.

The market capitalisation of Larsen & Toubro edged higher by Rs 13,241.39 crore to Rs 5,57,197.83 crore, and that of Hindustan Unilever went up by Rs 10,984.34 crore to Rs 5,09,285.65 crore.

Reliance Industries’ valuation advanced by Rs 2,097.54 crore to Rs 17,49,418.94 crore.

However, the mcap of Tata Consultancy Services (TCS) eroded by Rs 13,296.47 crore to Rs 7,82,049.62 crore, and that of LIC declined by Rs 822.25 crore to Rs 5,05,051.07 crore.

Reliance Industries remained the most valued firm, followed by HDFC Bank, Bharti Airtel, ICICI Bank, State Bank of India, TCS, Bajaj Finance, Larsen & Toubro, Hindustan Unilever and LIC.

The Reserve Bank of India’s twin forex swap facilities, announced to shore up reserves and stabilise the rupee, are set to inject meaningful relief into the banking sector’s deposit mobilisation and liquidity profile over the coming quarters.

Under the new window, operational between June 8 and September 30, 2026, banks can raise FCNR(B) deposits with tenors of 3-5 years and swap the proceeds into rupees at zero hedging cost, with these deposits also exempt from CRR and SLR requirements. This is a marked improvement over the 2013 scheme, where the RBI charged a 3.5% hedging fee. Banks have responded swiftly, raising FCNR(B) rates by 200-300 basis points to 6-7%, passing on the hedging benefit to depositors.

The economics are compelling on both sides. Analysis suggests NRI depositors using leverage of around 9x could earn returns of 15-26% annually, while banks stand to gain roughly 60-65 basis points in spread benefit from FCNR-backed lending versus regular wholesale deposits, a structure being described as a win-win.

Separately, a concessional swap facility for external commercial borrowings and overseas foreign currency borrowings, available until December 2026, offers banks hedging at a flat 1.5% per annum against a market cost of 3.5-4%, translating into a 200-250 basis point benefit on incremental overseas borrowing costs.

The broader context matters: foreign institutional investors have been net sellers of roughly $45 billion since CY24, denting holdings in large private lenders by 3-13% over the past year. The 2013 precedent offers a useful template. That swap window drew in $27 billion of FCNR(B) deposits and $34 billion in total inflows, strengthening reserves by $12 billion and helping the rupee appreciate 3.4% within a year. Reserves continued climbing for three years after, by a cumulative $68 billion.

While the current yield differential between US and Indian deposit rates is narrower than in 2013, the proposition still holds appeal, particularly with the seasonally strong NRI remittance months of July and August approaching. The RBI projects total FY27 inflows of $40-50 billion from these measures combined.
For the sector, the near-term opportunity lies less in headline growth and more in execution, how efficiently lenders convert these flows into profitable book expansion. Institutions with strong overseas franchises and disciplined deposit pricing are best placed to convert this liquidity tailwind into durable margin gains, even as the improvement in systemic liquidity and currency stability should collectively ease the FII selling pressure that has weighed on sector sentiment.RBL Bank – TP: 405

RBL Bank is expected to benefit significantly from Emirates NBD’s proposed open offer, which could strengthen capital adequacy, support faster loan growth, and reduce funding costs. In 4QFY26, the bank reported healthy business momentum, with advances and deposits growing strongly, while profitability improved on lower tax expenses. Management has guided for 20%+ loan growth in FY27, supported by scaling secured retail lending and moderating credit costs. Improving return ratios, potential strategic synergies from the proposed investment, and healthy balance sheet growth support a positive medium-term outlook.

(The author Siddhartha Khemka is Head – Research, Wealth Management at Motilal Oswal Financial Services Ltd.)

(Disclaimer: Recommendations, suggestions, views and opinions given by experts are their own. These do not represent the views of The Economic Times.)

Marc Chandler has been covering the global capital markets in one fashion or another for 40 years, working at economic consulting firms and global investment banks. A prolific writer and speaker he appears regularly on CNBC and has spoken for the Foreign Policy Association. In addition to being quoted in the financial press daily, Chandler has been published in the Financial Times, Foreign Affairs, and the Washington Post. In 2009 Chandler was named a Business Visionary by Forbes. Marc’s commentary can be found at his blog (www.marctomarket.com) and twitter www.twitter.com/marcmakingsense

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