The Selloff and the Reversal
FIIs sold ₹1.1 lakh crore in Indian equities between October 2025 and February 2026 — one of the largest sustained selling episodes in recent history. The primary drivers were a strong dollar, elevated US yields, and a sentiment shift toward developed market equities.
What Changed
Three factors drove the reversal: (1) US Federal Reserve signalled a pause in rate hikes, weakening the dollar index from 108 to 102; (2) India's Q3 GDP growth came in at 7.1%, above consensus; (3) Valuation compression during the selloff made Indian large-caps attractive relative to regional peers.
What This Means for Markets
FII re-entry at scale tends to amplify existing domestic momentum. Watch the India VIX — if it stays below 16, institutional sentiment is constructive. Also track the rupee: a strengthening rupee reduces hedging costs for foreign investors and often correlates with FII buying cycles.