Foreign investors have resumed significant selling of Indian equities, focusing on large caps amid concerns over sectoral focus and growth prospects, resulting in record annual outflows and heightened market volatility.
Foreign investors have returned to selling Indian equities after a brief pause in July and August, renewing pressure on a market that has already been one of the world’s weakest performers this year. Data from India’s National Securities Depository shows that overseas portfolio investors have sold about $1.7 billion of Indian shares so far in September, taking year-to-date net selling to almost $26 billion, the biggest annual outflow on record.
Bernstein argued that the scale of the exits reflects more than short-term caution. In a note cited by CNBC, the brokerage said many of India’s biggest listed companies are focused on defending established businesses rather than funding the next wave of growth. It said the country’s largest corporates are reluctant to commit capital to sectors such as electric vehicles and semiconductors, and that many large-cap names no longer offer the kind of earnings growth that would justify their high valuations.
The mismatch between India’s economic expansion and its equity-market performance has become more visible in 2026. The Nifty 50 index has fallen by more than 10% since January, and other reports show an even steeper decline as foreign selling accelerated in September. Market data cited by local financial publications indicates that foreign portfolio investors withdrew tens of thousands of crore rupees during the month, with the pace of selling quickening in the final trading sessions and spilling into early October.
Part of the problem is that much of India’s growth is not being captured by the country’s main benchmark. Analysts have pointed out that mid-cap and small-cap companies are more exposed to manufacturing, financial technology and consumer technology, while Nifty 50 constituents remain dominated by mature sectors. Data from Ambit Capital cited by CNBC showed that average earnings growth for Nifty 50 companies was 11% in the June quarter, compared with 31% for mid-caps. Even so, Bernstein said those smaller companies are still too limited in scale and liquidity to absorb large institutional flows.
The pressure is also hitting some of India’s best-known groups. Reliance Industries and HDFC Bank have been trading near 52-week lows, according to LSEG data cited by CNBC, while information technology stocks continue to face margin pressure as artificial intelligence reshapes global spending patterns. Tata Group’s internal boardroom dispute has added another layer of uncertainty, potentially complicating plans tied to India’s first semiconductor fabrication plant. Bernstein argued that India’s relative lack of exposure to the AI boom has left it looking like an anti-AI trade, but said foreign money is unlikely to rush back simply because current global worries fade.
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