Nifty 50 & Sensex Half-Yearly Review: FIIs Haven’t Left India, They’re Rebalancing in Stocks and Bonds

A lot of noise has been created when Foreign Portfolio Investors (FPIs) took their money out of the Indian stock market, Nifty 50 and Sensex, largely driven by the uncertainty from the US-Iran war that spiked crude oil prices for a few days, shifting global capital flows toward AI-led markets like the US and Taiwan and a steady rupee depreciation against the US dollar.

A new RBI Financial Stability Report shows that foreign portfolio investors (FPIs) hold the lowest share of Indian equities in two decades. This is because of the relative underperformance of Indian stocks and sustained capital outflows for a long period, The Hindu Businessline reported.

No denying the numbers, Nifty 50 has slumped 6.7% and Sensex is down 8.5% approximately year-to-date but there is more to that story. Historically, whenever times are tough, foreign investors tend to bet on safe havens like gold and the US dollar.

While a lot of investments flowed to South Korea and Taiwan, whose markets skyrocketed, with KOSPI shooting up over 85% and TAIEX rising nearly 60% YTD, powered by AI-driven semiconductor stocks, China, on the other hand, faced challenges due to economic challenges and the weaker property sector, and its stock market remained bearish.

Two-Speed Story: Heavy Selling In Equities, But Record Buying In Government Bonds

There is a twist to the outflow story. While foreign investors took money out of the Indian equities, wiping out Rs 2.73 lakh crore from the stock market until July 3, 2026, overseas investors bought Indian government bonds at a record pace. Reuters estimates foreign investors bought around $8 billion of Indian government debt this year, with June alone seeing a record $3 billion of inflows.

The Nifty 50 rose 8.8% in 2024, followed by a hike of 10.5% in 2025 before falling this year, and the BSE Sensex was up 8.2% in 2024 and 9.5% in 2025 before taking a hit in 2026. Having said that, Systematic Investment Plans (SIPs), which are regular monthly mutual fund investments by retail shareholders, have grown nearly tenfold over the past decade.

The Indian bond market, which is relatively smaller than its peers, saw huge inflows in anticipation that India would be included in the Bloomberg Global Aggregate Bond Index and attractive real yields compared with other major markets. Removal of taxes on certain foreign investments in government securities also played its own part.

Nifty & Sensex Outlook: Where Are Indian Stocks Headed Next?

Stock markets move with investors' sentiments. But the Indian stock market has heavy flows from Domestic Institutional Investors (DIIs) who have been aggressive net buyers in Nifty and Sensex this year, infusing over Rs 4.73 lakh crore so far.

"Indian equities are supported by numerous positive drivers: 1) India's GDP growth and earnings outlook are likely to stay robust and outpace its major peers' amid a consumption-led boost to domestic demand, 2) stable inflows from domestic investors driven by inflows into systematic investment plans and greater equity allocation in hybrid strategies and 3) the likely resumption of foreign investor inflows, given record low foreign investor positioning towards Indian equities," according to analysts at Standard Chartered.

"Key risks to our positive equity view include: 1) A prolonged Middle East conflict leading to a growth slowdown and probable downgrades of earnings expectations, and 2) a lack of AI investment opportunities in India."