Foreign institutional investors have accelerated their withdrawal from India-focused equity funds, with nearly 60% of the foreign money that flowed into India-focused equity funds during the 2023-24 investment rally now being withdrawn as global investors continue shifting capital towards artificial intelligence opportunities. According to an Elara Capital research report, India-focused funds attracted nearly $20 billion between March 2023 and October 2024, but almost $12 billion of those inflows have since been redeemed. In calendar year 2026 alone, investors have withdrawn $9 billion from India-focused funds, including $7 billion from long-only funds and $2 billion from exchange-traded funds (ETFs). The shift is being driven by the global AI investment theme, though buying has become more selective than during the initial rally.
Foreign institutional investors may be showing early signs of easing their relentless selling after pulling out more than $60 billion from Indian equities since the market peaked in September 2024. According to a report by Motilal Oswal Financial Services, 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 subsequent decline in crude oil prices. FII selling eased significantly after the ceasefire announcement, with flows turning net positive at $1.3 billion in the second half of June versus net outflows of $4.3 billion in the first half. The average daily flows shifted 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. As per Business Standard, this marks the first improvement in sentiment after nearly two years of sustained outflows.
Depository and exchange data confirm the expert views on FPI activity. As reported by the National Securities Depository Ltd (NSDL), FPIs net purchased ₹6,623.03 crore in India's cash market between 16 June and 3 July. Over the same period, they net sold index futures worth ₹5,118 crore and cut their net stock futures longs from 763,732 contracts to 547,349 contracts, according to NSE data. The reduction in longs in stock futures, along with net cash buying, aligns with market experts' view that this represents closure of reverse arb positions rather than fresh buying. The FPI net cash sales for the year through 3 July stand at ₹2.97 trillion, while outstanding net shorts on index futures as of 3 July stand at 250,767 contracts.
There has been a dramatic shift in institutional ownership patterns, with FII holdings in the Nifty-500 falling 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. According to Motilal Oswal, DII inflows reached a record $162 billion during October 2024-June 2026, helping cushion the impact of foreign outflows and providing stability to the markets. The current cautious stance largely reflects global capital chasing AI-led opportunities, with the initial AI capex cycle maturing and leadership broadening to secondary AI ecosystem plays.
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). In contrast, FIIs remained buyers in Financials ($0.4 billion), Services ($0.3 billion), and Consumer Durables ($0.2 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. 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. As per Business Standard, 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.
