Foreign institutional investors remained net sellers in Indian equities, pulling out $4.9 billion from the market in May Yet beneath the broader outflows, one sector stood out, as per JM Financial’s analysis. Capital Goods strengthened its position as the second-largest sector in foreign institutional investor portfolios and attracted fresh inflows of $292 million during the month.
JM Financial said Capital Goods and Pharma were the only sectors among the five largest foreign institutional investor holdings to register an increase in portfolio share during May. This, even as foreign investors reduced exposure across several major sectors including Banking, Financial Services and Insurance, Oil & Gas, Fast-Moving Consumer Goods and Automobiles.
The report comes at a time when foreign institutional investor ownership of Indian equities has fallen to 14.4%, the lowest level since January 2012, while domestic institutional investors continue to increase their presence in the market.
Capital Goods attract fresh foreign money despite broader market outflows
JM Financial said Capital Goods emerged as one of the strongest sectors for foreign institutional investor activity in May.
The brokerage reported net inflows of $292 million into the sector during the month, making it one of the biggest recipients of foreign capital. Only Metals attracted larger inflows at $701 million.
More importantly, Capital Goods increased its share in foreign institutional investor assets under custody to 7.6% in May 2026 from 6.9% in April 2026.
“As a % of FII AUC in India, Capital Goods was the second highest at 7.6%, growing from 6.9% in Apr’26. FIIs were net buyers of Capital Goods equities in May’26,” JM Financial said.
The sector now ranks second among all sectors in terms of foreign institutional investor holdings in India.
Banking remains the largest FII sector despite heavy selling
While Capital Goods attracted fresh foreign money, Banking, Financial Services and Insurance witnessed the largest outflows during May.
JM Financial said foreign institutional investors sold Banking, Financial Services and Insurance stocks worth $2.42 billion during the month, making it the biggest source of outflows across sectors.
Despite the selling pressure, the sector continued to account for the largest share of foreign institutional investor assets under custody at 29.5%.
“As % of FII AUC in India, BFSI remained the highest at 29.5%, down from 31.1% in Apr’26. FIIs were net sellers of BFSI equities in May’26,” JM Financial said.
According to the brokerage, Banking, Financial Services and Insurance, Capital Goods, Automobiles, Oil & Gas and Pharma together account for nearly 60% of foreign institutional investor assets in India.
Pharma joins Capital Goods in gaining portfolio share
Among the largest sectors tracked by JM Financial, Pharma was the other segment that saw an increase in foreign institutional investor allocation.
The brokerage said Pharma attracted net inflows of $19 million during May. Its share in foreign institutional investor assets under custody rose to 7.1% from 6.6% a month earlier.
“As a % of FII AUC in India, Pharma was the fifth-highest at 7.1%, rising from 6.6% in Apr’26. FIIs were net buyers of Pharma equities in May’26,” JM Financial said.
The increase came even as foreign investors remained cautious on several other sectors.
Oil & Gas, FMCG and Auto witness notable outflows
JM Financial said Oil & Gas recorded the second-largest sectoral outflow after Banking, Financial Services and Insurance.
Foreign institutional investors pulled out $937 million from Oil & Gas stocks during May. Fast-Moving Consumer Goods witnessed outflows of $372 million, while Automobiles recorded outflows of $265 million. Services, Information Technology and Consumer Durables also saw net selling.
The brokerage noted that Oil & Gas remained the fourth-largest foreign institutional investor holding at 7.1% of assets under custody, while Automobiles ranked third at 7.5%. Both sectors witnessed a decline in portfolio share compared with April.
“Of these, FII shareholding increased sequentially in Capital Goods and Pharma, whereas it decreased in BFSI, Auto and Oil & Gas,” JM Financial said.
Foreign investors remain net sellers for a third consecutive month
At the market level, JM Financial said foreign institutional investors remained net sellers of Indian equities in May 2026.
Net outflows stood at Rs 46,890 crore, or $4.9 billion, during the month. The primary market recorded net inflows of Rs 3,300 crore, while the secondary market witnessed net outflows of Rs 50,190 crore.
“FIIs remained net sellers in May’26, marking the third consecutive month of net FII outflows,” JM Financial said.
Over the past 12 months, foreign institutional investors brought in Rs 70,500 crore into primary markets but pulled out Rs 4,00,900 crore from secondary markets.
FII ownership falls to its lowest level in more than 14 years
JM Financial’s data shows foreign institutional investor ownership of Indian equities continued to decline.
Foreign institutional investors owned 14.4% of Indian equities at the end of May 2026, down from 14.6% in April 2026. The brokerage said this was the lowest level recorded since January 2012.
“FII ownership as a percentage of total Indian equities has fallen from 20.2% in May’16 to 14.4% in May’26,” JM Financial said.
At the same time, domestic institutional investors continued to gain market share. Their ownership of Indian equities reached 18.7% in March 2026 and has remained higher than foreign institutional investor ownership since December 2024.
Conclusion
JM Financial’s latest FII flow tracker shows that Capital Goods emerged as one of the biggest beneficiaries of foreign institutional investor interest in May 2026 despite broad-based selling across Indian equities.The report also shows a sharp contrast in foreign investor positioning. While overall foreign institutional investors remained net sellers and reduced exposure to Banking, Financial Services and Insurance, Oil & Gas and Automobiles, they continued to add to Capital Goods and Pharma, making these sectors stand out in an otherwise cautious month for foreign flows.
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