Foreign Investors Pull Over INR 14,000 Crore from Indian Stocks in May
From the start of May through the 10th, foreign portfolio investors sold Indian securities worth over INR 14,200 crore. Total capital outflows since the beginning of 2026 have exceeded INR 2 lakh crore, attributed to global instability and stronger earnings growth in Korea and Taiwan.
The Bottom Line: What's Really Happening
The Indian market is experiencing something more serious than cyclical selling. What's unfolding is a massive structural rotation of global capital: money is moving from India's "expensive" and "slow" market into "cheap" and "fast" markets in North Asia.
In the first 10 days of May, foreign portfolio investors pulled over INR 142.3 billion (about $1.7 billion at 95 INR/USD) from Indian stocks, bringing total outflows since the start of 2026 to an astronomical INR 2.19 trillion (roughly $26 billion). This figure has already surpassed the record outflows for the entire year of 2025.
However, the main story is not just the volume of sales but their cause. The Indian market is caught in a "perfect storm": domestic corporate earnings are falling, while competitor earnings in Korea and Taiwan are soaring on the wave of the AI boom. When Goldman Sachs describes foreign ownership of Indian stocks as "falling to a 14-year low," it's not a metaphor but a diagnosis.
Timeline and Context
September 2024 – January 2026. The beginning of the great exodus. Cumulative outflows since September 2024 reached $53 billion. Month after month, except for a brief respite in February 2026, foreigners consistently reduced their positions.
March 2026 became a point of no return — foreigners withdrew a record INR 1.17 trillion in a single month. For the first time in two decades, foreign ownership of Indian stocks fell below the level of domestic institutional investors.
April–May 2026. Sales resumed with renewed vigor. The key catalyst for the latest wave was geopolitics: on May 10, US President Trump called Iran's response to peace proposals "absolutely unacceptable," sending Brent crude oil prices above $105 per barrel. For India, which imports about 85% of its oil, this was a direct blow to macroeconomic stability.
The Indian rupee collapsed to an all-time low of 95.63 INR/USD, and former Reserve Bank of India Governor D. Subbarao warned that the psychological mark of 100 INR/USD could force the central bank to raise rates.
Who Wins and Who Loses
Winners: South Korea and Taiwan. Manish Raychaudhuri, a veteran investor with decades of experience, calls this the "Korea-Taiwan paradox": over the past six months, earnings per share (EPS) forecasts in Korea have surged 120%, and the stock market has risen 60-70%, yet it has become... cheaper than before the rally. This happened because earnings growth outpaced stock price growth. That's where foreign money is flowing — following the AI boom.
Loser: Indian large-cap stocks. Banks, real estate, and consumer sectors — traditional pillars of the index — have lost the most. Foreign ownership in the banking sector plummeted by 200 basis points in the first quarter. Even renowned blue chips like HDFC Bank and ICICI Bank, long-time anchors of foreign portfolios, have come under pressure.
Winners: Selective sectors within India. Smart money remaining in the Indian market has regrouped. According to Geojit Investments, foreigners are selectively increasing positions in energy, construction, industrials, and metals — sectors that benefit from high commodity prices and government infrastructure spending. Interest is growing in mid-cap companies capable of showing organic growth even in challenging conditions.
Biggest losers: Retail investors. While institutional money exits, Indian households are left "holding the bag." Direct retail share of market capitalization has fallen from 9.6% to 9.2%. Local mutual funds are forced to absorb foreign sales, reaching a record ownership share of 11.4%, but their resources are not infinite.
What the Media Isn't Saying
First insight: The problem isn't just about money; it's about math. Nifty is a "value trap."
Most headlines focus on geopolitics and oil, missing the point. The key issue isn't that investors fear Iran. The problem is that the Indian market has become absurdly expensive compared to peers. Kotak Institutional Equities provides damning numbers: Nifty trades at a forward P/E of 19.3x. For comparison, KOSPI (Korea) stands at 8.3x, Hang Seng (Hong Kong) at 11.6x. The gap is simply monstrous.
But that's not the worst part. Raychaudhuri makes an observation that should be a cold shower for every India bull: "There is not a single sector in India where consensus earnings forecasts have been raised. Not one." Earnings are falling across all industries simultaneously — a phenomenon the Indian market hasn't seen in decades.
Second insight: A hidden threat to North Asia.
The paradox of the current moment is that foreigners are fleeing India for Korea and Taiwan precisely when those markets face a risk that the market stubbornly ignores. Raychaudhuri warns: a blockade of the Strait of Hormuz hits not only oil but also supplies of sulfur (a key industrial component), fertilizers, and — attention — helium, critical for semiconductor production. Taiwan and Korea, as leading chip manufacturers, could suffer from helium supply disruptions more than the market currently prices in. If the conflict with Iran drags on, today's growth leaders could become tomorrow's laggards.
Third insight: Goldman Sachs says "the bottom is near," but with an important caveat.
In a May 9 report, Goldman Sachs states that the bulk of selling is likely behind us. But the bank itself warns: a resumption of buying is impossible in the near term until earnings expectations stabilize. That is, investors may stop selling, but that doesn't mean they will start buying. The market could simply hang in a low-volume zone for months. Goldman's worst-case scenario suggests another $4-5 billion in potential sales if the geopolitical crisis drags on.
Forecast: Next 30 Days and 90 Days
30 Days (to mid-June 2026)
Key driver: US-Iran talks and oil dynamics. If tensions persist, oil will remain in the $100-110 range. This will continue to pressure the rupee through a widening current account deficit. Former RBI Governor Subbarao made it clear: the "psychological choke point" is 100 INR/USD. A breach would force the central bank to choose between defending the currency and supporting growth, and the choice would likely favor rate hikes.
Under these conditions, a resumption of large-scale buying by foreigners is unlikely. The market will probably remain range-bound with high volatility.
90 Days (to mid-August 2026)
The decisive factor will be the July corporate earnings season. If Indian companies finally show a turnaround in earnings momentum — without which all talk of market cheapness remains hollow — a cautious return of capital may begin.
However, there is also the risk of a "second wave." If Western markets begin pricing in a Fed rate hike due to the Iran conflict, as PIMCO fears, US Treasury yields will spike, making Indian stocks even less attractive compared to risk-free dollar instruments.
On the other hand, if Raychaudhuri's scenario materializes and helium and commodity disruptions hit Taiwan and Korea's chipmakers, India could unexpectedly become a "safe haven" for Asian allocations again. That would be an ironic twist: from laggard to defensive asset.
But the baseline forecast for summer 2026 is a continuation of the "quiet exodus." Foreign capital is leaving not out of panic but cold calculation. Until Indian earnings start growing by at least 10-15% and the P/E ratio falls below 15x, global portfolio managers will prefer the cheaper, more dynamic stories of Seoul and Taipei. The Indian market faces a long and painful reality check.
— Editorial Team
