FII selloff: Rs 2 lakh crore pulled out from six sectors; will the bleeding stop in 2026?
Foreign investors have sharply pared their exposure to Indian equities in 2025, pulling out close to Rs 2 lakh crore from six key sectors, in what has emerged as one of the harshest bouts of selling seen in recent years. The scale and concentration of the exits have intensified debate on whether the pressure will ease as the year draws to a close or spill into 2026.Data from the National Securities Depository Ltd (NSDL), as reported ET, shows that foreign institutional investors (FIIs) have withdrawn Rs 1.6 lakh crore from Indian equities so far this year, signalling a decisive shift in risk appetite after a prolonged period of steady inflows.
Heavy exits concentrated in IT, FMCG and power
The selloff has been led by the information technology sector, which recorded outflows of Rs 79,155 crore. FMCG followed with Rs 32,361 crore, while power stocks saw Rs 25,887 crore exit the segment. Healthcare witnessed withdrawals of Rs 24,324 crore, consumer durables Rs 21,567 crore, and consumer services Rs 19,914 crore, underscoring the breadth of the retreat.“Foreign institutional investors have been net sellers of Indian equities to the tune of US$17.8 billion in CY25, as this liquidity has flowed into other global equity markets such as China, Japan, Europe and the US,” ICICI Securities said, ET quoted. The brokerage added that while Indian markets delivered muted returns, global peers posted gains in the range of 12–61%, with emerging markets returning around 23%.Selling was not limited to the worst-hit sectors. Realty stocks saw outflows of Rs 12,364 crore, financial services Rs 10,894 crore, and automobiles Rs 9,242 crore. In contrast, only a few pockets attracted foreign inflows. Telecom led the list with Rs 47,109 crore, followed by oil and gas at Rs 9,076 crore and services at Rs 8,112 crore.
Will foreign flows turn as 2026 approaches?
Despite the intensity of the exits, some strategists believe the worst of the foreign selling could be nearing an end. Amish Shah, Bank of America’s head of India research, said a reversal in flows is possible, even if inflows take longer to materialise.“We do think that the outflows will at least reverse. Whether that leads to inflows is the debate. But the probability of that $18 billion outflow moving towards zero is quite high,” Shah told ET. He pointed to three potential triggers: expected Nifty returns of around 12%, compared with 4% for the S&P 500, the likelihood of 75 basis points of US Federal Reserve rate cuts, and a possible weakening of the US dollar, which has historically supported emerging market allocations.Another factor weighing on secondary market flows has been the surge in IPO activity. “FIIs, in CY25, have invested US$7.1 billion in IPOs, which is around 40% of the proceeds they sold in secondary markets,” ICICI Securities noted. At the same time, domestic mutual funds continued to attract strong systematic investment plan (SIP) inflows of Rs 3.2 lakh crore during the year. However, much of this capital was channelled into large-cap stocks and new listings, leaving broader segments exposed to sharper corrections.
Outlook for 2026
Global brokerages remain divided on the outlook. Morgan Stanley said FII positioning is close to cyclical lows but cautioned that sustained buying would depend on a recovery in growth, cooling equity markets elsewhere, or an increase in corporate issuances.Nomura struck a more guarded tone. “We do not anticipate a surge in FII flows, as market valuation at 20.7x one-year forward earnings is close to the recent peak, and earnings growth of 10–15% is not very compelling in our view,” the brokerage said, while adding that sentiment could improve modestly as India’s valuation premium relative to global peers has returned to its historical average.Looking ahead, Axis Securities expects conditions to turn more supportive in the next year. “The year 2026 is expected to be more constructive for Indian equities, transitioning from a period of valuation-led consolidation to an earnings-led market,” it said. The firm advised a ‘buy on dips’ approach with a long-term horizon, favouring financials, domestic consumption plays, selective cyclicals, healthcare and diversified exposure across market capitalisations.ICICI Securities highlighted PSU banks as offering an attractive risk-reward, citing a “revival of credit growth, strong asset quality and valuations at historical means”. It also said IT stocks merit a fresh look after recent corrections, adding that “valuations have hit a floor and CY26E will see growth bouncing back”.Jefferies, meanwhile, maintained an overweight stance on financials, telecom, autos, real estate, cement and utilities, while remaining underweight on IT, consumer staples, industrials and healthcare.
