FIIs pulled out $40 billion from India in 2 years: Why foreign investors are staying away
Foreign investors have pulled out around $40 billion from Indian equities in the past two years, despite India's continued economic growth, according to a Bernstein report.
- Sep 29, 2026,
- Updated Sep 29, 2026 6:30 AM IST
Foreign institutional investors (FIIs) have withdrawn around $40 billion from Indian equities over the past two years, raising questions about what is keeping global investors away from a market that has continued to post strong economic growth. A September 21 Bernstein report, titled “India Strategy: When will FIIs return?”, argues that the traditional drivers of foreign flows into India have changed significantly.
Bernstein said the traditional cycle of foreign and domestic institutional flows has weakened. Over the last decade, FIIs have net invested only around $4 billion in Indian equities, compared with about $300 billion by domestic institutional investors (DIIs).
The report also noted that the last 24 months saw combined FII outflows of $56.3 billion, compared with inflows of $38.6 billion in the preceding 24-month period.
Economic growth is no longer enough
One reason cited by Bernstein is that the historical relationship between India's economic growth and foreign investment has weakened.
The report said FIIs historically followed India's macroeconomic strength, with GDP growth and foreign flows moving closely together until around 2007. However, that relationship has weakened over time and the recent correlation between the two has turned negative.
The relationship between interest-rate differentials and FII flows has also weakened. Bernstein said foreign flows had followed the India-US rate differential relatively closely between 2012 and 2018, but that linkage has faded over the past four to five years.
FII flows from India: Key numbers
| Indicator | Figure / Finding |
|---|---|
| FII net investment in Indian equities over past decade | $4 billion |
| DII net investment over past decade | $300 billion |
| FII outflows over the last 2 years | Around $40 billion |
| Combined FII flows in latest 24 months | -$56.3 billion |
| Combined FII flows in preceding 24 months | +$38.6 billion |
| FII-rupee correlation in latest period | 72.9% |
| Average relative valuation, Dec 2023–Sep 2026 | 162% |
| Net FII flows, Dec 2023–Sep 2026 | -$44 billion |
| Bernstein's 12-month FII flow view | Flat to modestly positive |
Source: Bernstein, “India Strategy: When will FIIs return?”, September 21, 2026.
Rupee and valuations matter more
The report identifies the rupee's performance against the US dollar as an increasingly important factor for foreign investors. Bernstein found the correlation between FII flows and rupee movement against the dollar reached 72.9% in the most recent period analysed.
For dollar-based investors, rupee weakness can reduce returns even when Indian stocks perform well in local-currency terms.
Valuations are another concern. Bernstein said higher Indian valuations relative to emerging markets have increasingly coincided with weaker FII flows after 2020. Its longer-period analysis shows average relative valuations rising to 162% in the latest period, while net FII flows turned negative at $44 billion.
What could bring foreign money back?
Bernstein said temporary improvements in oil prices, earnings growth or broader macroeconomic conditions could bring cyclical foreign flows back. However, it argued that sustained investment would require India to develop globally competitive businesses in areas such as advanced semiconductors, batteries and energy storage, space, defence and deep-tech.
For the next 12 months, Bernstein expects FII flows to be flat to modestly positive, while stressing that this view is based largely on easing near-term headwinds rather than a major structural improvement.
Foreign institutional investors (FIIs) have withdrawn around $40 billion from Indian equities over the past two years, raising questions about what is keeping global investors away from a market that has continued to post strong economic growth. A September 21 Bernstein report, titled “India Strategy: When will FIIs return?”, argues that the traditional drivers of foreign flows into India have changed significantly.
Bernstein said the traditional cycle of foreign and domestic institutional flows has weakened. Over the last decade, FIIs have net invested only around $4 billion in Indian equities, compared with about $300 billion by domestic institutional investors (DIIs).
The report also noted that the last 24 months saw combined FII outflows of $56.3 billion, compared with inflows of $38.6 billion in the preceding 24-month period.
Economic growth is no longer enough
One reason cited by Bernstein is that the historical relationship between India's economic growth and foreign investment has weakened.
The report said FIIs historically followed India's macroeconomic strength, with GDP growth and foreign flows moving closely together until around 2007. However, that relationship has weakened over time and the recent correlation between the two has turned negative.
The relationship between interest-rate differentials and FII flows has also weakened. Bernstein said foreign flows had followed the India-US rate differential relatively closely between 2012 and 2018, but that linkage has faded over the past four to five years.
FII flows from India: Key numbers
| Indicator | Figure / Finding |
|---|---|
| FII net investment in Indian equities over past decade | $4 billion |
| DII net investment over past decade | $300 billion |
| FII outflows over the last 2 years | Around $40 billion |
| Combined FII flows in latest 24 months | -$56.3 billion |
| Combined FII flows in preceding 24 months | +$38.6 billion |
| FII-rupee correlation in latest period | 72.9% |
| Average relative valuation, Dec 2023–Sep 2026 | 162% |
| Net FII flows, Dec 2023–Sep 2026 | -$44 billion |
| Bernstein's 12-month FII flow view | Flat to modestly positive |
Source: Bernstein, “India Strategy: When will FIIs return?”, September 21, 2026.
Rupee and valuations matter more
The report identifies the rupee's performance against the US dollar as an increasingly important factor for foreign investors. Bernstein found the correlation between FII flows and rupee movement against the dollar reached 72.9% in the most recent period analysed.
For dollar-based investors, rupee weakness can reduce returns even when Indian stocks perform well in local-currency terms.
Valuations are another concern. Bernstein said higher Indian valuations relative to emerging markets have increasingly coincided with weaker FII flows after 2020. Its longer-period analysis shows average relative valuations rising to 162% in the latest period, while net FII flows turned negative at $44 billion.
What could bring foreign money back?
Bernstein said temporary improvements in oil prices, earnings growth or broader macroeconomic conditions could bring cyclical foreign flows back. However, it argued that sustained investment would require India to develop globally competitive businesses in areas such as advanced semiconductors, batteries and energy storage, space, defence and deep-tech.
For the next 12 months, Bernstein expects FII flows to be flat to modestly positive, while stressing that this view is based largely on easing near-term headwinds rather than a major structural improvement.