Foreign institutional investors (FIIs) have snapped a brutal selling streak in Indian equities, pumping nearly $3 billion into stocks over the month through July 15 after pulling out almost $20 billion in FY26. But the comeback is highly selective: financials, consumer services, healthcare, services and consumer durables attracted ₹42,532 crore, even as FIIs continued dumping autos, power and capital goods.
Financial services dominated the buying with net inflows of ₹16,609 crore, followed by consumer services at ₹10,442 crore. Healthcare attracted ₹5,536 crore, while services and consumer durables received ₹4,997 crore and ₹4,948 crore, respectively, shows NSDL data.
The five-sector tally exceeded the overall inflow because foreign investors simultaneously withdrew heavily from several parts of the market. Automobiles suffered the biggest one-month outflow at ₹8,260 crore, followed by power at ₹5,010 crore, capital goods at ₹4,099 crore, telecommunications at ₹3,174 crore and oil and gas at ₹2,531 crore.
The numbers suggest that the FII return is, for now, a targeted deployment rather than an across-the-board rebuilding of India positions after months of sustained selling.
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“Current FII flows remain predominantly tactical rather than structural,” said Rajesh Palviya, head of research at Axis Direct, citing uncertainty over global monetary policy, the relative appeal of developed markets and earlier concerns about expensive domestic valuations.
The pace of selling has eased as India’s valuation premium over emerging markets cooled to its historical average of about 50%, but overseas allocations remain highly sensitive to global macroeconomic shifts, Palviya said.
The concentration also masks sharp changes within the month. Financial services attracted ₹14,634 crore between June 16 and June 30, but inflows slowed to ₹1,975 crore in the first half of July. Consumer services moved in the opposite direction, with buying accelerating from ₹3,081 crore to ₹7,361 crore.
Healthcare inflows similarly jumped from ₹1,435 crore in the second half of June to ₹4,101 crore during July 1-15. Services and consumer durables saw steadier interest across both fortnights.
That pattern aligns partly with an improving earnings outlook for domestic-facing businesses. Strong earnings momentum is visible in areas including banking and financial services and pharmaceuticals, Palviya said, while information technology services face near-term pressure and downgrade risks due to cautious global demand.
Banks and IT
Foreign investors remained largely indifferent to IT despite the broader return of capital, selling a net ₹673 crore over the month. FMCG stocks also saw an outflow of ₹1,580 crore, indicating that the overseas bet on Indian consumption was selective rather than thematic. Consumer services and durables together received ₹15,390 crore, even as autos and consumer staples were sold.
Private banks offer one of the market’s most compelling opportunities, according to Viraj Gandhi, chief executive officer of SAMCO Mutual Fund. He said valuations of 1.8 to 2.2 times book value, compared with historical averages of 3.1 to 3.9 times, were supported by return on equity of 15% to 18%, accelerating credit growth and non-performing assets at historic lows.
That creates “a rare combination of cyclical momentum and structural profitability that justifies multiple expansion,” Gandhi said.
The picture was more complicated across cyclical and infrastructure-linked sectors. Metals received ₹5,993 crore during the first half of July after suffering a ₹4,371 crore outflow in the preceding fortnight, leaving the sector with a relatively modest one-month inflow of ₹1,622 crore.
Capital goods, meanwhile, faced selling in both fortnights. That contrasts with Gandhi’s medium-term view that metals and capital goods stand to benefit from a multiyear infrastructure and fixed-capital-formation cycle. Construction stocks still attracted ₹3,887 crore during the month, while real estate received ₹3,965 crore and construction materials drew ₹924 crore.
AI fatigue helping India
The renewed India allocation comes as an overcrowded artificial-intelligence trade in North Asia shows signs of fatigue, according to Abhay Laijawala, managing director and chief investment officer for India at Lighthouse Canton.
“For the past one year, FIIs unrelentingly moved capital out of India to fund the pure-play AI narrative in Taiwan and South Korea’s chipmakers and memory majors,” Laijawala said. “That trade is now showing real signs of exhaustion.”
According to Laijawala, foreign investors sold roughly $30.5 billion of South Korean equities in June and another $8 billion in July to date. They also sold $18.3 billion of Taiwanese equities, followed by a further $13 billion so far in July, as concentration risk and elevated valuations weighed on the trade.
Capital retreating from an overcrowded bet has not necessarily lost interest in AI-linked growth, he said. Instead, it is seeking exposure with lower embedded valuation premiums and more durable, order-book-backed growth, an opportunity India can offer through listed companies exposed to AI infrastructure as well as domestic growth themes.
Still, one month of buying does not establish a structural FII comeback. Palviya said sustained energy and inflation relief, clearer corporate earnings visibility and macroeconomic stability, including a stable rupee and lower global bond yields, would be needed before the flows could be characterised as long-term rebuilding. Until those conditions align, foreign buying is likely to remain selective.
(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times)
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