After $60 bn exodus, FIIs show early signs of returning to Indian equities | Personal Finance

Foreign institutional investors (FIIs) may finally be showing early signs of returning to Indian equities after nearly two years of relentless selling, with improving global conditions and easing geopolitical tensions beginning to reverse the trend, according to a report by Motilal Oswal Financial Services (MOFSL).

 

Foreign investors have sold nearly $60 billion worth of Indian equities since the market peaked in September 2024, making it one of the longest periods of sustained outflows in recent years. However, the brokerage said sentiment has started improving following the US-Iran ceasefire, softer crude oil prices and improving market valuations.

 

“FII flows turned net positive at $1.3 billion during the second half of June, compared with net outflows of $4.3 billion in the first half of the month,” the report said, indicating that foreign investors have begun returning after months of heavy selling.

 
 

The report noted that Indian equities have remained volatile and largely range-bound over the past 21 months, with persistent FII selling acting as the biggest drag on market performance.

 

Domestic investors cushion foreign outflows

 

While foreign investors continued to exit Indian equities, domestic institutional investors (DIIs) stepped in aggressively.

 

According to the report, DIIs invested a record $162 billion into Indian equities over the same period, helping cushion the impact of foreign outflows and providing stability to the markets.

 

FII sentiment deteriorated sharply after geopolitical tensions escalated in West Asia earlier this year. Between March and June 2026, FIIs withdrew nearly $27.4 billion, contributing to a correction of around 15 per cent from the market peak.

 

June marks fourth straight month of FII selling

 

Despite the improvement in the second half of June, the month still marked the fourth consecutive month of net FII outflows.

 

Foreign investors sold equities worth $5.2 billion during June, although the pace of selling moderated compared with previous months.

 

The bulk of the selling was concentrated in a few sectors.

 

• 
  Oil & Gas: $1.4 billion
• 
  Automobiles: $1.1 billion
• 
  Metals: $1 billion
• 
  Technology: $0.8 billion

 

In contrast, FIIs remained net buyers in:

 

• 
  Financial Services: $0.4 billion
• 
  Services: $0.3 billion
• 
  Consumer Durables: $0.2 billion

 

The report also highlighted that Capital Goods witnessed its first monthly outflow in six months, while Consumer Services attracted foreign inflows for the first time after five consecutive months of selling.

 

Meanwhile, FMCG extended its streak of foreign selling to 11 consecutive months, while Technology and Telecom each recorded six straight months of FII outflows.

 

Financials remain biggest drag in CY26

 

Foreign investors have remained net sellers through most of calendar year 2026.

 

After recording a record monthly selloff of $12.6 billion in March, FIIs have sold $29.2 billion worth of Indian equities so far this year, with five of the six months registering net outflows. February was the only month to record net inflows, at $2.5 billion.

 

Among sectors, Financial Services saw the highest outflows at $11.8 billion, followed by Technology at $3.7 billion.

 

However, some sectors continued to attract foreign capital.

 

• 
  Capital Goods: $2.3 billion inflows
• 
  Metals: $1.4 billion
• 
  Services: $0.6 billion

 

Technology, FMCG and Telecom witnessed foreign selling in every month of CY26, while Capital Goods, Metals and Services consistently attracted inflows.

 

Domestic ownership at record high

 

The report also highlighted a structural shift in the ownership of Indian equities.

 

FII ownership in the Nifty 500 declined to a record low of 17.1 per cent in March 2026, while domestic institutional ownership climbed to an all-time high of 20.9 per cent, reflecting the growing role of Indian investors in supporting the market.

 

Outlook improves

 

According to MOFSL, easing geopolitical risks, lower crude oil prices, improving corporate earnings and more reasonable valuations could support a further recovery in foreign flows.

 

The brokerage also noted that India’s valuation premium over other emerging markets has fallen to historic lows, reducing a key concern for overseas investors.

 

It added that average daily FII activity has improved from net selling of around $0.4 billion during the peak of the West Asia conflict to net buying of roughly $0.1 billion following the US-Iran ceasefire, suggesting foreign investor sentiment is gradually turning positive.