Foreign Institutional Investors (FIIs) began 2026 by extending their selling spree in Indian equities, offloading ₹7,608 crore in the first two trading sessions of January. This recent divestment follows a challenging 2025, which saw record outflows of approximately ₹1.66 lakh crore from the Indian market. This substantial withdrawal in 2025 represented the highest annual outflow ever recorded since FIIs commenced investing in India, significantly impacting the Indian rupee, which depreciated by nearly 5% against the US dollar. Analysts attribute the prolonged FII exodus to several factors, including relatively elevated valuations in the Indian market, the global shift towards Artificial Intelligence (AI) related investments, concerns over potential US tariffs, and delayed progress on the India-US trade deal. Despite these persistent outflows, market experts maintain a positive long-term outlook for Indian equities, anticipating a turnaround in FII investment flows later in 2026. This optimism is primarily driven by India's robust domestic fundamentals, including strong GDP growth projections and expectations of a healthy recovery in corporate earnings. While Domestic Institutional Investors (DIIs) provided crucial support by injecting record amounts into the market in 2025, experts suggest that a more benign global interest rate environment and clarity on international trade relations could further incentivize foreign investors to return. However, FII activity in derivatives remains cautious, indicating a wait-and-see approach.