Foreign portfolio investors withdrew ₹35,962 crore, or about $3.97 billion, from the Indian equity market in January 2026 amid global uncertainty and domestic policy changes, according to the data cited. The outflow followed a record withdrawal of ₹1.66 lakh crore, or $18.9 billion, in 2025.
Market participants attributed the January outflows to volatility in global capital markets, elevated valuations, and rising geopolitical tensions, which have increased risk aversion among foreign investors. The withdrawals occurred even as select large sectors and banking stocks in the domestic market saw a rally during the period.
In the Union Budget 2026–27, the government announced an increase in the securities transaction tax on the futures and options segment. Finance Minister Nirmala Sitharaman proposed raising STT on futures trades to 0.05 percent from 0.02 percent. STT on options premium and options exercise transactions was proposed to be increased to 0.15 percent from 0.10 percent and 0.125 percent, respectively.
Akash Shah, Technical Analyst at Choice Equity Broking, said the higher STT would increase costs for derivatives-focused foreign portfolio investors. He stated that the increase could raise tax collections but may reduce trading volumes, affecting the strategic participation of FPIs and potentially slowing foreign investment in the near term. He added that investors assessing sustained FPI flows are focusing on broader stability, the movement of the rupee, and consistency in tax policy.
Analysts also cited global factors behind the withdrawals. Waqarjaved Khan, Senior Analyst at Angel One, said FPIs opted to reduce risk due to trade tensions between the United States and Europe, the Greenland dispute, and tariff-related threats. He noted that a b dollar, higher bond yields, the rupee trading in the 90–92 per dollar range, and high valuations in Indian equities were additional factors influencing outflows.
Himanshu Srivastava, Head at Morningstar Investment Research India, said elevated interest rates in developed markets, a b dollar, and geopolitical uncertainties are reducing risk appetite in emerging markets.
Foreign investor caution has also been reflected in domestic market sentiment following the Budget 2026–27 announcements. The increase in STT on the derivatives segment, policy measures related to the public sector banking sector, and disinvestment plans have had a mixed impact on market sentiment, with analysts stating that these measures have added to uncertainty for foreign investors.
Analysts said FPIs are expected to consider corporate earnings, currency market stability, and consistency in tax policy while making future investment decisions. They added that recent withdrawals may create short-term pressure, while longer-term flows would depend on stability across macro and policy parameters.
