FII selling eases after $60 billion exodus. Is the tide finally turning for Indian stock markets?

After pulling out more than $60 billion from Indian equities since the market peaked in September 2024, foreign institutional investors (FIIs) may finally be showing early signs of easing their relentless selling.

While foreign investors remained net sellers for the fourth straight month in June 2026, the pace of outflows slowed materially following the US-Iran ceasefire and the subsequent decline in crude oil prices.

Indian equities have remained volatile and largely range-bound over the past 21 months, with persistent FII outflows offsetting record domestic institutional investor (DII) inflows. However, improving macroeconomic conditions, easing geopolitical risks, lower crude oil prices and attractive valuations are leaving fewer reasons for FIIs to remain net sellers for long.

According to a report by Motilal Oswal Financial Services, 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 Over the past four months (Mar'26-Jun'26), FIIs have withdrawn nearly $27.4 billion, contributing to a market correction of almost 15% from the peak.

However, after the announcement of the US-Iran 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 $1.3 billion vs. net outflows of $4.3 billion in the first half of Jun'26, added the report.

FII sentiment shows signs of improvement

According to the report, DII inflows reached a record $162 billion during October 2024-June 2026, but continued FII outflows of $60 billion remained the key driver of market volatility since October 2024. In June 2026, foreign investors remained net sellers for the fourth consecutive month, with outflows of $5.2 billion. However, the pace of selling moderated significantly during the month, with average daily flows shifting from net selling of around $0.4 billion during the West Asia conflict to net buying of around $0.1 billion after the US-Iran ceasefire announcement.

The brokerage believes the current cautious stance reflects global capital chasing AI-led investment opportunities rather than weakening fundamentals in India.

“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,” it said.

The report further noted that FII flows have already started showing signs of improvement.

"FII flows have started to show signs of improvement, with average daily flows shifting from net selling of around $0.4 billion during the West Asia conflict to net buying of ~$0.1 billion following the US-Iran ceasefire announcement. This turnaround has supported the rebound in Indian equities and indicates a gradual improvement in FII sentiment."

The report also highlighted a significant shift in institutional ownership. FII holdings in the Nifty-500 fell to a record low of 17.1% in March 2026, down 180 basis points year-on-year and 110 basis points quarter-on-quarter. In contrast, DII ownership rose to an all-time high of 20.9%, up 170 basis points year-on-year and 50 basis points quarter-on-quarter, reflecting the growing role of domestic investors in supporting Indian equities.

Sector-wise breakup

Sectorally, nearly two-thirds of June's outflows came from just three sectors. Oil & Gas saw the largest outflows of $1.4 billion, followed by Automobiles ($1.1 billion), Metals ($1 billion) and Technology ($0.8 billion), as per the report.

In contrast, FIIs remained buyers in Financials ($0.4 billion), Services ($0.3 billion) and Consumer Durables ($0.2 billion). FMCG extended its streak of outflows to 11 consecutive months, while Technology and Telecom registered outflows for the sixth straight month. Capital Goods, meanwhile, recorded its first monthly outflow in six months, while Consumer Services posted its first inflow after five months of selling, it added.

Despite the continued selling, the report highlighted that foreign investors remain selective across sectors.

Following the record $12.6 billion selloff in March 2026, cumulative FII outflows in CY26YTD stood at $29.2 billion, with only February recording net inflows of $2.5 billion. Financial Services witnessed the highest outflows at $11.8 billion, followed by Technology at $3.7 billion and Automobiles at $3.3 billion. On the other hand, Capital Goods attracted inflows of $2.3 billion, Metals received $1.4 billion, while Services saw inflows of $0.6 billion.

Technology, FMCG and Telecom recorded outflows in all six months of CY26, while Capital Goods, Metals and Services attracted inflows in five, four and three months, respectively.

Notably, FIIs turned positive on Capital Goods and Utilities in CY26YTD after recording net outflows in CY25, while Metals remained the only sector to witness positive FII inflows in both CY25 and CY26YTD, signalling continued optimism toward the sector.

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