Foreign investors have taken more money out of Indian shares this year than in any year on record. Selling slowed in the last week, and foreign funds were net buyers on two days. Smaller stocks have taken the biggest hit.
Foreign portfolio investors have withdrawn ₹48,056 crore from Indian equities so far in October, according to depository data. That takes total foreign outflows in 2026 to about ₹3.08 lakh crore, almost double the ₹1.66 lakh crore they withdrew in the whole of 2025.
October reversed a short period of buying. Foreign investors had put ₹20,200 crore into Indian shares in July and ₹29,631 crore in August, as hopes of a ceasefire in the West Asia conflict briefly improved sentiment. Those inflows have now been more than reversed.
Analysts point to the same causes behind the selling. Additionally, crude oil is near $114–117 a barrel. Rising tension in West Asia and weak corporate earnings are cited. India bears higher oil costs than most peers. It imports most of its crude, and foreign investors trim exposure.
Selling slowed though
Selling slowed in the week ending 23 October, and foreign investors were net buyers on two of the five days. V K Vijayakumar of Geojit Investments pointed to three reasons: lower US bond yields, a stronger rupee earlier in the week, and large-cap valuations that now look more reasonable after months of decline.
It is too early to call this a turning point. Brent crude settled at $116.91 on Friday after new attacks on tankers in the Strait of Hormuz. The rupee’s rally has stalled. If oil stays this high, the improvement could reverse quickly.
Forex reserves keep falling
The pressure shows up in India’s foreign exchange reserves. They stood at $721.02 billion on 16 October, down $5.01 billion from the previous week. Their reserves decreased by about $65 billion from the $785.71 billion peak on 4 September. The RBI has sold dollars to slow the rupee’s fall. Foreign currency assets were $591.85 billion and gold reserves $105.8 billion.
The reserves are still large, enough to cover about 11 months of imports. But the speed of the decline shows how much it has cost to defend the rupee during an oil shock and a period of foreign selling.
Smaller stocks are falling hardest
The biggest damage this month has been in smaller companies. The BSE Midcap index is down about 6% in October and the BSE Smallcap index about 8.9%, far worse than the main indices. On Friday alone, the Nifty Smallcap 100 fell almost 3%.
The pattern is familiar. Domestic institutions such as mutual funds and insurers have kept buying Indian shares, and have absorbed most of this year’s foreign selling. But they concentrate on large, liquid companies. Smaller stocks, which rose strongly over the past two years and still trade at high valuations, have less support when sentiment weakens.
For retail investors, the main lesson from October is that small and mid-sized stocks fall harder than large companies when sentiment turns. For the wider market, foreign flows will depend mainly on oil and on the US Federal Reserve’s decision on 28 October.
About The Author
