What Happened
- Foreign Portfolio Investors (FPIs) turned net buyers in the first week of February 2026, investing Rs 8,129 crore in Indian equities after three consecutive months of heavy selling.
- The turnaround was triggered by a breakthrough in India-US trade talks, where the US agreed to reduce tariffs on Russian crude imports from an effective rate of 50% to 18%.
- FPIs had pulled out Rs 35,962 crore in January, Rs 22,611 crore in December, and Rs 3,765 crore in November. In calendar year 2025, FPIs withdrew a net Rs 1.66 lakh crore ($18.9 billion) from Indian equities.
- Supportive measures in the Union Budget FY26-27, stabilising US bond yields, and a brief strengthening of the rupee from its record low of 90.30 per dollar contributed to improved sentiment.
- The rupee later weakened to around 90.70 per dollar by February 6, indicating that the FPI flow reversal remains fragile.
Static Topic Bridges
SEBI (Foreign Portfolio Investors) Regulations, 2019
Foreign Portfolio Investors are governed by the SEBI (Foreign Portfolio Investors) Regulations, 2019, which replaced the earlier 2014 regulations. The framework simplified the registration process, rationalised compliance requirements, and introduced a two-category classification system (Category I for sovereign wealth funds, central banks, and multilateral organisations; Category II for all other FPIs) replacing the earlier three-category system.
- FPIs are registered through Designated Depository Participants (DDPs) such as custodian banks, which serve as the first point of contact for compliance.
- SEBI imposes an aggregate investment limit of 24% of paid-up equity capital in any Indian company (extendable to sectoral cap with board approval).
- The 2019 regulations introduced the concept of "Common Owner" to prevent circumvention of investment limits through multiple FPI registrations.
- As of early 2026, over 11,000 FPIs are registered with SEBI, making India one of the largest FPI destinations among emerging markets.
Connection to this news: The Rs 8,129 crore inflow reversal operates within this regulatory framework, where SEBI's liberalised registration norms have facilitated the re-entry of foreign capital when macroeconomic conditions improve.
Balance of Payments and Capital Account Management
FPI flows are a critical component of India's Balance of Payments (BoP) under the capital account. Unlike Foreign Direct Investment (FDI), which represents long-term equity stakes, FPI is portfolio investment in stocks and bonds that can be rapidly reversed, making it inherently volatile. The Reserve Bank of India manages capital account convertibility cautiously, following the Tarapore Committee recommendations (1997 and 2006).
- India maintains a managed float exchange rate regime, where the RBI intervenes in forex markets to curb excessive volatility without targeting a specific exchange rate.
- India's forex reserves stood at approximately $630 billion in early 2026, providing a buffer against sudden FPI outflows.
- The distinction between FDI and FPI is crucial: FDI involves a 10% or more stake in an enterprise (as per IMF definition), while FPI involves less than 10% and is primarily for portfolio returns.
- Sudden FPI outflows can depreciate the rupee, widen the current account deficit (through costlier imports), and trigger equity market corrections.
Connection to this news: The FPI outflow of Rs 1.66 lakh crore in 2025 exerted significant pressure on the rupee (which hit a record low of 90.30 per dollar), demonstrating the macroeconomic vulnerability that volatile portfolio flows create for India's external sector.
India-US Trade Relations and Tariff Negotiations
India-US bilateral trade has grown to approximately $190 billion (2024-25), making the US India's largest trading partner. Trade tensions have periodically emerged over issues including India's tariffs on agricultural products, ICT goods, and the US withdrawal of India's Generalised System of Preferences (GSP) benefits in 2019. India's response has typically involved retaliatory tariffs and concurrent negotiations for a bilateral trade package.
- The US removed India from the GSP programme in June 2019, affecting approximately $6.3 billion worth of Indian exports that previously enjoyed duty-free access.
- India-US trade negotiations have focused on market access in agriculture, dairy, medical devices, ICT products, and digital trade rules.
- The India-US Trade Policy Forum (TPF), revived in 2021, serves as the primary institutional mechanism for resolving trade issues.
- Energy trade has become a significant component, with India importing US crude oil and LNG as part of trade diversification away from traditional Middle Eastern suppliers.
Connection to this news: The tariff reduction on Russian crude imports from 50% to 18% signals a de-escalation in trade tensions, directly boosting market sentiment and triggering the FPI inflow reversal observed in early February 2026.
Key Facts & Data
- FPI inflows in first week of February 2026: Rs 8,129 crore.
- FPI outflows: Rs 35,962 crore (January 2026), Rs 22,611 crore (December 2025), Rs 1.66 lakh crore ($18.9 billion) for full year 2025.
- Rupee hit record low of 90.30 per dollar before partial recovery.
- US tariff on Russian crude imports reduced from effective 50% to 18% under India-US trade deal.
- SEBI FPI Regulations 2019: two-category system, 24% aggregate investment limit in any company.
- India-US bilateral trade: approximately $190 billion (2024-25).
- India's forex reserves: approximately $630 billion (early 2026).