Indian stock market under FPI selling pressure: What should domestic retail investors do now? Experts weigh in

Foreign investors have continued to pull money out of Indian equities because of high crude oil prices, inflationary pressures, weak earnings prospects, rupee depreciation, and limited participation in AI trade, according to experts.

FPIs (foreign portfolio investors) have sold Indian equities worth over ₹2,20,000 crore so far in 2026, after offloading ₹1,66,286 crore in equities last year, according to data available on NSDL.

Meanwhile, domestic institutional investors (DIIs) have consistently bought Indian equities during this period, helping offset the impact of heavy foreign outflows. Persistent FPI selling continues to weigh on the Indian stock market's performance. So how should retail investors navigate such a trend? Here’s what investment experts have to say.

So where is the global capital going and why?

According to Priyank Sharma, a Sebi-registered research analyst, a large part of the global capital is currently moving towards artificial intelligence and semiconductor-driven markets such as Taiwan and South Korea. In these countries, companies such as TSMC, Samsung, and SK Hynix are attracting strong flows due to the AI boom.

However, Sharma also noted that these current FPI outflows should not be viewed as a direct rejection of India’s growth story. “India is facing pressure from relatively higher valuations and global risk-off sentiment, but domestic fundamentals like consumption recovery, government capex, and banking stability remain intact. So overall, I see this as a temporary allocation shift by global investors,” he told Mint.

Sharma also noted that valuation is a key concern in the Indian market right now, which is prompting global investors to shift money towards cheaper markets. When compared with emerging markets like China, South Korea, and Taiwan, Indian equities are still trading at a premium valuation, he said.

Are retail investors underestimating risks while continuing to buy amid FPI selling?

The rise in SIP participation reflects improving financial discipline among Indian investors, said Harendra Zatakia, a Sebi registered investment advisor and the Founder of Wealth Aligned Financial Advisory. However, investors should avoid assuming markets will move only in one direction, he warned.

“Many retail investors have largely experienced a strong bull market environment and may not yet have seen prolonged periods of volatility. The focus should remain on disciplined investing through proper asset allocation, diversification, risk appetite and suitability rather than reacting to short term market narratives or geopolitical noise,” he noted.

Zatakia also highlighted that market themes keep changing rapidly, like a few months ago markets were focused on defence, then commodities, then gold, and now AI-related themes dominate discussions. Hence, long-term wealth creation cannot be driven by constantly changing trends, he said.

Should Indian retail investors also increase international exposure?

Both experts noted that while international exposure can play an important role in diversification and reducing concentration risk, Indian investors should not abandon Indian equities entirely.

“It also allows investors to participate in global sectors and businesses that may not be adequately represented in Indian markets. However, retail investors should avoid changing portfolios purely based on temporary FPI flows or short term global themes,” Zatakia said.

He also cautioned that international investing also comes with currency risk. While rupee depreciation can benefit international investments, a stronger rupee may reduce gains when foreign investments are converted back into Indian currency. Zatakia added that some segments of developed markets like the US are currently trading at elevated valuations, just like India, and thus international allocation should not be driven by recent market performance alone.

Meanwhile Sharma noted that for long-term investors, volatility is part of the equity cycle. Hence instead of making aggressive allocation changes based on short-term uncertainty, investors who are heavily concentrated in mid- and small-cap equities should use this phase to rebalance their portfolios, as a mix of equity, debt, and gold can help manage volatility more effectively.

Which segments of Indian markets still look attractive?

Investors are advised to avoid being fixated on speculative themes. Instead, they should focus on businesses with strong balance sheets, healthy cash flows and reasonable valuations, Zatakia said.

Giving certain examples, here are a few themes both experts noted:

• Domestic consumption-linked sectors may continue to benefit from India's long term structural growth
• Financial services remain a key long-term theme backed by rising formalisation and rapid digital adoption.
• Manufacturing could gain from government push, supply-chain diversification and “Make in India” initiatives.
• Healthcare and pharma remain attractive after the correction, supported by India’s export opportunity in generics and API manufacturing.
• Telecom continues to draw investors due to improving ARPU, 5G monetisation, and a stable market structure.
• Capital goods and infrastructure also look positive as government capex and infrastructure spending continue to support long-term growth visibility.
• Consumption-focused sectors could benefit from improving rural demand, tax relief measures, and recovery in spending trends.

“The key point for retail investors is that FPI flows are often short-term and theme-driven, while long-term wealth creation comes from staying invested in fundamentally strong sectors and businesses,” Sharma noted.