Foreign institutional investors staged a remarkable comeback in financial services during the second half of June 2026, purchasing shares worth ₹14,634 crore after pulling out ₹11,263 crore in the first part of the month, according to The Times of India. This marked their highest fortnightly purchase in financials in 2026 and the first since the second half of February. The renewed appetite for financials helped overseas investors turn net buyers of Indian equities worth more than ₹14,000 crore during June 16-30, reversing net sales of ₹63,450 crore in the first half of the month, as reported by NSDL data. "FIIs became net buyers in banking and financial stocks after recording three straight months of heavy outflows. A part of these inflows was driven by the FTSE June 2026 review, while the remainder reflected active buying," said Sriram Velayudhan, Senior Vice-President at IIFL Capital Services, as reported by The Times of India. The financial services sector's dominant presence in India's stock market made it most vulnerable to foreign institutions' risk-off sentiment towards India, but with the West Asia conflict showing signs of ending in mid-June, overseas investors' selling in Indian equities has eased.
Over the last 12 months, Indian primary markets recorded FII net inflows of $8.1 billion while secondary markets suffered FII net outflows of $49.3 billion, according to the JM Financial Institutional report. BFSI continues to be the biggest sector at 30.8% of FII assets under custody, up from 29.5% in May, while Capital Goods holds the second position at 7.5%, down from 7.6% in May. Pharma stands third at 7.4%, rising from 7.1% in May. In the second half of June, financial services recorded net buying of ₹14,634 crore compared with a net outflow of ₹11,263 crore in the first fortnight, while construction and consumer services followed with net buying of ₹3,484 crore and ₹3,081 crore, respectively, compared with outflows of ₹603 crore and ₹1,852 crore in the first half. As per The Economic Times, apart from financials, FPIs remained net buyers in construction, consumer services, services, consumer durables, realty and healthcare, among others, with purchases ranging between ₹1,400 crore and ₹3,400 crore. However, they sold shares worth between ₹1,300 crore and ₹4,300 crore in the automobile and auto components, capital goods, oil, gas & consumable fuels, power, and metals & mining sectors, continuing to pull out of IT stocks though the pace of selling subsided in the second half of June.
Domestic institutional investors have emerged as a key stabilising force for Indian capital markets, providing crucial resilience during periods of global volatility and foreign portfolio investment outflows. According to Sebi Whole-Time Member Amarjeet Singh, speaking at ASSOCHAM's 17th Mutual Fund Summit in New Delhi, sustained domestic participation has provided an important countervailing force during FPI outflows. The SEBI official highlighted that Systematic Investment Plans (SIPs) have become an important part of this resilience during recent market turbulence. Over the last 12 months, Indian primary markets recorded FII net inflows of $8.1 billion while secondary markets suffered FII net outflows of $49.3 billion, demonstrating the critical role of domestic participation in market stability. As noted by Motilal Oswal Financial Services in its India Strategy Report, even a transition from aggressive selling to a neutral stance, or merely a moderation in outflows, could provide a significant tailwind for equities, supported by resilient domestic institutional and retail inflows.
The data reveals encouraging long-term investment behavior among retail investors, with over 61 per cent of retail assets under management remaining invested for over 24 months. According to Singh's analysis, this trend demonstrates that mutual funds are increasingly being used to pursue longer-term financial goals rather than short-term market opportunities. The SEBI official emphasized that investors' patience has been a key factor during turbulent times, with the mutual fund industry enabling households to participate in long-term wealth creation and allowing ordinary citizens to participate in the country's economic growth. Looking ahead, institutional flows are likely to remain sensitive to a range of key domestic and global developments, with investors closely tracking the progress of the monsoon season and the upcoming Q1FY27 corporate earnings season. Vikas Gupta, CEO at OmniScience Capital, noted that "The financial services sector makes up nearly 40% of the index, and, naturally, that would get large flows since it is a large and liquid sector with growth potential while being mispriced." He emphasized that the financial services sector is likely to remain the favourite of long-term investors, including FPIs, with focus on financial services and infrastructure sectors that have clear growth visibility in the near to medium term and are significantly undervalued.
Despite encouraging trends, significant headroom remains for mutual fund penetration in India, with less than 5 per cent of India's population currently investing in mutual funds. As reported by JM Financial Institutional, the industry's future growth will depend on reaching investors across geographies, income segments and demographic groups. The SEBI official cautioned that investment decisions should be guided by financial goals, risk appetite and investment horizon, while noting that goal-based products such as life-cycle funds can help investors remain focused on suitable asset allocation. While risks persist amid downward revisions to earnings growth estimates, monsoon-related inflation concerns, and continued FII caution, much of the visible uncertainty appears to be priced in, leaving room for a constructive read on incremental positives according to market watchers. The renewed FII interest in financials, driven by global index rebalancing and value purchases, suggests that the West Asia conflict resolution and easing of foreign selling pressure could provide sustained support for Indian equities.
