Why are FIIs increasingly bearish on India vs other Asian markets? Explained

Indian markets are bleeding red on Monday as the situation in the Middle East is expected to escalate further. The ongoing conflict has taken the benchmark returns for India to -12% year-to-date (YTD) in 2026. The sharp fall is led by multiple factors, such as impending inflation, higher energy prices, and most importantly, the persistent outflow of capital from the Indian capital markets. The FII’s have sold more than ₹1.5 lakh crore in 2026 so far, with nearly ₹88,000 crore exiting in March alone.

FII selling is not a new phenomenon, and the Indian investors have become accustomed to such exits during turbulent times. However, it is interesting to note that, despite the energy crisis in West Asia, which impacts all the Asian economies equally, they continue to receive a strong inflow of capital, in contrast to India. This paradoxical situation needs a deep dive. Why are FIIs selling Indian equities at a faster pace than others?

The above table clearly highlights that FII’s have been increasingly bearish on India in 2026, extending their overall sentiment from 2025. Conversely, they have remained bullish on other major economies like Taiwan, South Korea, Japan and Hong Kong.

During the first three months of the year, FIIs poured $8.4 billion into Taiwanese markets as they aim to capture the AI trade in chipmaking by owning stocks like TSMC, which outperformed with robust earnings. Japan remained their second most favoured bet as the expansionary measures boosted the economic prospects of the world’s fourth-largest economy.

While South Korea saw $5.2 billion in FII inflow, the index gave the highest returns amongst the group. The South Korean market returns were also dominated by the AI trade as memory chipmakers like Samsung and SK Hynix attracted significant interest. Lastly, the Hong Kong markets also saw a net inflow of foreign capital despite real estate and property sector risks weighing on the economy

While all these economies are feeling the brunt of the ongoing crisis in the Middle East, they have largely continued to trade in green for 2026. In contrast, Indian markets have fallen 11% following the $9.5 billion FII exodus. That said, the other countries too are witnessing selling pressure from FII in March as they are exposed to the perils of high crude oil prices as well.

Why are FIIs selling Indian equities excessively?

Indian markets have seen an exponential inflow of capital through mutual funds, domestic institutions and individual retail investors, providing ample liquidity for easy exit. The consistent inflow of money through SIPs and lump sums has given AMCs enough “gunpowder” to absorb selling pressure during a crisis. Despite the muted returns over the 18 months, the mutual fund inflow has remained intact, garnering more than ₹29,000 crore each month through SIPs. The deep liquidity provides FII’s to cash out of Indian markets easily and reallocate capital to safer bets like bonds.

Another major reason for persistent selling by FIIs is that India remains the core user of Artificial Intelligence rather than a provider, which is where everyone wants to bet on. The US has chipmakers like NVIDIA, Micron and AMD, alongside AI giants like Google and Microsoft. Taiwan has TSMC, South Korea has Samsung and SK Hynix, all dominating the global AI ecosystem and supply chain. While India lacked in going up the value chain of AI. The Indian IT companies are now adopting AI at all levels to move up the value chain significantly. The tangible results of which are yet to be ascertained.

The muted returns delivered by Indian equities for more than one year were further eroded by currency depreciation. The Indian Rupee depreciated 4.2% against the US Dollar in 2026, which has intensified the selling pressure on the Indian equities. In contrast, the South Korean Won depreciated 2.8%, and the Japanese Yen depreciated 1.5% in the same period, helping to stabilise the overall return profile of FIIs in their global portfolio. That said, the Yen and Korean Won are now showing signs of pressure in March after FII selling intensifies across the region.

In addition to the above key triggers mentioned above, India remains an “expensive stock” in the portfolio of global markets. Even after the recent correction, the NIFTY50 is trading at 20x the price-to-earnings ratio. Meanwhile, Japan and Hong Kong traded at less than 20x PE valuation on TTM (Trailing twelve months) earnings, making them valuation-wise more attractive than India. While South Korean and Taiwanese stocks are trading at significantly higher valuations in comparison to others in the group, they are dominated by AI trade, which currently remains the most attractive investment theme globally.

In conclusion

Lofty valuation, a devaluing currency, and an impending inflationary scenario have made India appear expensive to other economies. That has prompted FIIs to exit and reallocate elsewhere, and the exit is easily provided through a consistent flow of domestic liquidity in the Indian markets.