Foreign institutional investors have maintained heavy selling pressure on Indian equities since September 2024, with cumulative outflows of nearly $60 billion, including almost $30 billion in 2026. According to reports from The Economic Times, this persistent selling has created opportunities for more selective foreign investment strategies. Q1 shareholding data suggests that while a broad-based return to Indian equities remains uncertain, foreign investors are becoming increasingly selective in where they deploy capital. The shift represents a strategic pivot from broad market exposure to targeted investments in high-conviction opportunities.
Three specific investments have delivered exceptional returns, demonstrating the payoff from targeted AI-focused investments. HFCL saw FII ownership more than double to over 15% from 7% in Q4, while the stock surged 214% over the same period. In Sterlite Tech, FII holding increased by 6.75 percentage points to 18.22%, with the stock soaring 248% in three months. MTAR Tech saw foreign investors raise their holding by 7.49 percentage points to 23.80%, with the stock climbing 120% over the same period. As reported by The Economic Times, these gains highlight the potential for significant returns from targeted AI-related investments.
According to international brokerage Nomura, India's data centre IT load has expanded from around 350 MW in 2019 to nearly 1.5-1.6 GW in 2025, translating into a CAGR of about 29%, compared with roughly 20% globally. HFCL has revised its FY27 revenue growth estimate to 40% and approved an investment of ₹215 crore to build a manufacturing facility for advanced AI data centre connectivity solutions. Deven Choksey Research sees another 53% upside potential, calling defence and aerospace the "X-factor" that changes the entire investment thesis for the stock. The brokerage initiated coverage with a 'Buy' rating and target price of ₹362 per share.
The potential for continued foreign investment rotation into India's mid and small-cap winners remains significant. According to Motilal Oswal Financial Services, more than 80% of active global emerging-market funds are underweight India. If those funds simply restore their allocations to neutral, the shift could generate around $25 billion of inflows. As reported by The Economic Times, the bull case extends beyond optical fibre and data centres, with defence revenue trajectory projected to grow from ₹77 crore (FY26) to ₹5,000 crore (FY29) at 25%+ EBITDA margins. The strategic focus on AI-ready infrastructure positions these companies well for continued growth in the expanding data centre and connectivity markets.
