Nonstop FII Selling Points to 3 Big Challenges for Your Wealth

Accustomed to seeing current account deficits, India will now have to get used to capital account deficits as well, as Indian promoters rush to invest abroad. This unique twin deficit problem will not only create sustained pressure on the INR, but it will also expose Indian retail investors, who ploughed over $100bn in the post-Covid stockmarket rally, to pressure on their household balance sheets. To protect your wealth in Sankat Kaal, you can invest in our Global funds in GIFT City with an investment of $5K OR invest in our flagship domestic product, Consistent Compounders.

Exhibit 1: FPI net equity outflows in Jan-May 2026 have already surpassed that of CY2025

Source: NSDL depository data; Business Standard (25^th Dec 2024), Outlook Money/NSDL (25^th Dec 2025), Business Standard/PTI/NSDL (1^st May 2026), and finnovate.in/NSDL sectoral data (Jun 2026)

FII exits is the canary in the coalmine

FII outflows have hit record levels of $18 billion in CY2025, surpassed by $26 billion in just Jan-May 2026. This is NOT a transient correction — it is a sustained, structural repositioning and as explained below, it has significant implications for your & my money.

Note: FII stands for Foreign Institutional Investment i.e. investment in financial assets like shares and bonds. FDI stands for Foreign Direct Investment i.e. investment in factories & actual physical assets.

1. Big ticket outward flows of FDI from India into America. Donald Trump is publicly squeezing India Inc and coaxing desi promoters into investing vast sums into USA. POTUS’ pressure aside, the low cost of industrial land & working capital in America plus the opportunity to avoid tariffs is persuading dozens of smaller Indian firms to set up large factories in America. It seems likely that India’s net FDI figure will be negative or close to zero for several years to come. As explained below, this has major implications for the Indian economy and its currency.

2. India seems likely to run twin deficits (both on current & capital account) implying sustained pressure on the INR. For several decades now India has run a current account deficit due to our need for imported gadgets & machinery and our love for overseas holidays & foreign education. Historically, this was offset by a capital account surplus thus creating a manageable situation in terms of INR depreciation (which used to be around 40% per decade ). Now, the new normal is likely to be that alongside the current account deficit, India will also have a capital account deficit i.e., FII selling will continue until stockmarket valuations slide further and FDI will also be negative or near zero (see previous bullet). A current plus capital account deficit implies sustained pressure on the INR which could end up giving up half of its value each decade. This has obvious adverse implications for the value of your wealth in US$.

3. Indian retail investors likely to see pressure on their balance sheets as their wealth is transferred to FIIs via the stockmarket. Domestic institutions (DIIs) have absorbed ~90% of the FII selling thus preventing a market crash in India. But this is creating a novel risk of wealth transfer from domestic retail to exiting foreign institutions. The post-Covid stockmarket rally in India was very unusual as it saw a long & sustained rally in companies with dodgy accounts. Indian investors poured over $80 billion into this rally (see chart below). FIIs saw Indian companies trading at stratospheric valuations, encashed their desi investments and sent this $100bn back home to New York, London, Singapore and Hong Kong. This very material transfer of wealth from Indians to foreigners will now start biting as local investors stare at their stagnant portfolios in a country where net household savings are close to multi-decade lows (5.1% of GDP in FY23), household debt is at 41% of GDP and, critically, non-housing consumer debt now rivals rich-world levels at sub-$3,000 per capita income.

Exhibit 2: FPI and DII ownership pattern flipped in 2025 (for NSE listed companies)

Source: Prime Database (primeinfobase.com) quarterly reports, reported by Business Standard and JM Financial; *- DII number interpolated as no public document available for this period.