Foreign institutional investors have pulled a massive ₹4.3 lakh crore out of Indian equities since late 2024, fundamentally altering the market landscape according to Jefferies. This relentless selling has weighed heavily on returns, with MSCI India declining about 8% between September 2024 and May 2026 and underperforming MSCI Emerging Markets by a staggering 67 percentage points in dollar terms. As reported by The Economic Times, the brokerage linked this selling to an "unfavourable valuation-growth scenario for Indian stocks vs Asia," driven particularly by surging earnings in semiconductor and memory names in Taiwan and Korea. Despite the recent underperformance, MSCI India still trades at a 70% price-to-earnings premium to emerging markets, "a tad above average" and higher than the 10-year mean of 62%.
Domestic institutions have stepped in as the new dominant force in the market, with DIIs recording roughly ₹11.8 lakh crore of net equity purchases since the FII selloff began in September 2024. According to Jefferies, this has taken their shareholding in BSE 500 companies to a record 18.6%, finally above that of foreign investors. The brokerage described the Indian market as increasingly "domesticated," as rising local ownership and steady domestic flows help cushion the impact of continued foreign selling on individual stocks. Jefferies expects sustained DII inflows of about ₹5.3 lakh crore a year, providing selective opportunities in DII-dominated stocks while cushioning the market from further foreign selling pressure.
According to Elixir Equities Director Dipan Mehta, geopolitical tensions, particularly the Iran crisis, are overshadowing strong corporate earnings across Indian markets. As reported by The Economic Times, Mehta stated that the market continues to remain hostage to developments emerging from the Middle East, with investors unwilling to take aggressive positions until there is greater clarity on the Iran situation. "Well, nothing much has changed in the last week or so. We are still struggling with finding to find a solution to the Iran crisis and the market can make a move only depending upon how the situation improves or deteriorates over there," Mehta explained to ET Now. The latest developments include the escalation of the Iran crisis and recent hike in gold import duty, adding to market nervousness despite strong earnings momentum.
Out of 92 stocks under its India coverage, Jefferies found that FII holdings declined in 61 names over March 2025 to March 2026, with 16 counters transitioning from being predominantly FII-owned to predominantly DII-owned. Within this domestically dominated basket, the brokerage flagged seven names where analysts maintain a 'Buy' rating: Eternal, Kotak Mahindra Bank, Godrej Consumer Products, Siemens, JSW Energy, Mankind Pharma, and IndiGo. As reported by The Economic Times, these "new domestic favourites" could prove relatively resilient if FIIs continue to pare exposure, given that DIIs now exert greater influence on their shareholder base. However, the brokerage also highlighted DMart, Hero MotoCorp, Hindalco and Wipro as stocks where analysts have a Hold or Underperform rating, noting that such counters could face "relatively higher incremental pressure" if FII selling persists.
Despite the uncertain backdrop, both Elixir Equities and Jefferies advocate for selective investment rather than complete market avoidance. According to Elixir Equities Director Dipan Mehta, he emphasized "Keep on nibbling here and there, here and there something interesting comes up, a good number comes through." His strategy focuses on buying quality businesses that have corrected or remained flat despite delivering strong operational performance. Jefferies strategy screen focuses on where "enough hands have changed from FIIs to domestic institutional investors" to soften further potential FII pressure. Among the highlighted companies, Elixir Equities mentioned Coforge as a potential winner amid AI-driven transformation, SJS Enterprises in auto ancillary space, and growing interest in ideaForge Technology, while Jefferies particularly likes Eternal, Kotak Bank, JSW Energy, IndiGo, and GCPL among their domestic favourites.
