IGI Logo

The ‘In And Out’ of FII Flows: Exodus eases; is the tide turning?

* Indian markets have witnessed heightened volatility over the past 21 months, remaining largely range-bound and below their Sep'24 peak. While DII inflows have reached a record level of USD162b during Oct'24-Jun'26, persistent FII outflows of USD60b have been the key driver of market volatility since Oct'24, reflecting a cautious global stance toward India.

* FIIs had turned negative on India since Oct’24, with outflows intensifying sharply following the onset of the West Asia conflict in Feb’26. Over the past four months (Mar'26-Jun'26), FIIs have withdrawn nearly USD27.4b, contributing to a market correction of almost 15% from the peak. However, after the announcement of the USIran ceasefire agreement and the subsequent decline in crude oil prices, FII selling eased significantly, with flows turning net positive in the second half of Jun’26 at USD1.3b vs. net outflows of USD4.3b in the first half of Jun’26.

* In this report, we analyze FII flows across various sectors in the Indian markets in Jun’26 and CY26YTD and evaluate their broader stance across sectors for the year.

FII flows reverse direction in second half of Jun’26

* Notably, FII outflows have continued for the fourth consecutive month in Jun’26 at USD5.2b. However, the selling eased materially, with flows turning net positive in the second half of Jun’26 at USD1.3b.

* Two-thirds of outflows in Jun’26 were driven by three sectors. FIIs remained most bearish on O&G (-USD1.4b), Automobile (-USD1.1b), Metals (-USD1b) and Technology (-USD0.8b). In contrast, they were most bullish on Financials (+USD0.4b), Services (+USD0.3b), and Consumer Durables (+USD0.2b).

* Capital Goods recorded first outflows in six months at USD0.4b in Jun’26. Consumer Services (USD0.1b) recorded first inflows after five months of outflows.

* FMCG recorded 11 consecutive months of outflows, while Technology and Telecom recorded six consecutive months of outflows

CY26YTD: FIIs remain buyers in Capital Goods and Metals

* Following a record selloff of USD12.6b in Mar’26, FII flows have remained negative since then, with net selling of USD29.2b in Indian equities in CY26YTD.

* Five out of the last six months recorded FII outflows, with Feb’26 being the only month to see inflows of USD2.5b.

* In CY26YTD, Financial Services (USD11.8b) and Technology (USD3.7b) witnessed the sharpest outflows, while Capital Goods (USD2.3b), Metals (+USD1.4b) and Services (+USD0.6b) saw the maximum inflows.

* Technology, FMCG and Telecom reported outflows for all six months of CY26, while Capital Goods, Metals and Services recorded five, four, and three months of inflows in the calendar year, respectively.

* Notably for CY25, Telecom remained the most preferred FII bet, attracting inflows of USD5.5b. In contrast, Technology, FMCG and Utilities witnessed big outflows of USD8.6b, USD4.2b and USD3b, respectively

India rebounds in Jun’26; can the flows sustain?

* India was among the positive performers in the key global markets in Jun’26. While FII flows remained highly sensitive to the external triggers, easing geopolitical risks, lower crude oil prices, improving corporate earnings, and sharp valuation corrections from CY24 highs, along with India's valuation premium to other EMs at historic lows, leave fewer reasons for FIIs to remain net sellers for long.

* The current cautious FII stance largely reflects global capital chasing AI-led opportunities. As the initial AI capex cycle matures, leadership is broadening to secondary AI ecosystem plays, while improving macros are enhancing India's attractiveness.

* FII flows have started to show signs of improvement, with average daily flows shifting from net selling of around USD0.4b during the West Asia conflict to net buying of ~USD0.1b following the US-Iran ceasefire announcement. This turnaround has supported the rebound in Indian equities and indicates a gradual improvement in FII sentiment.

For More Research Reports : Click Here 

For More Motilal Oswal Securities Ltd Disclaimer
http://www.motilaloswal.com/MOSLdisclaimer/disclaimer.html
SEBI Registration number is INH000000412