Foreign investors pull $64 billion from Indian stocks as oil prices stay high
Foreign institutional investors have withdrawn about $64 billion from Indian equities over the past two years, and analysts say a sustained drop in Brent crude below $90 a barrel is needed to encourage their return.
Foreign institutional investors (FIIs) have sold roughly $64 billion of Indian equities in the last 24 months, marking the longest and deepest outflow in two decades, according to a JM Financial report. The net outflow reached $59.2 billion through September 2026, with an additional $5 billion withdrawn in October.
Despite lower price-to-earnings multiples – the Nifty’s forward earnings multiple fell to 17.1, up from 24.8 in September 2024 – and an improving earnings outlook, FIIs have remained on the sidelines. The report highlights Brent crude as the key macro-economic trigger. Historically, Brent prices above $105 a barrel have coincided with sustained FII selling, while a decline below $90 a barrel tends to ease pressure.
"The rupee is a thermometer, not a lever," the analysts wrote, noting that past FII flows better predict subsequent rupee movements than the reverse.
Brent hovered around $115 a barrel in late October, well above the level analysts consider supportive of foreign inflows. Since 2016, months with Brent above $105 saw average FII outflows of $4.1 billion, whereas prices below $75 were associated with modest monthly inflows of $700-$900 million.
Domestic institutional investors have partially offset the foreign sell-off, buying $91.7 billion in the past year, including $53.4 billion from mutual funds. Their purchases have kept market volatility in check but have not prompted a broader reversal of foreign participation.
JM Financial’s base case assigns a 45 % probability that Brent will stay between $100 and $115 a barrel. Under that scenario, the firm expects the first three-month run of FII inflows in January-March 2027, amounting to $15-$20 billion for FY27 and $10-$15 billion for FY28. A de-escalation in West Asia could accelerate inflows, while further geopolitical tension could delay them.
The analysis suggests that until Brent consistently falls below $90 a barrel, cheaper valuations alone are unlikely to draw foreign capital back into Indian equities.