Foreign investor selling in Indian equities showed signs of easing towards the end of June but the recovery in sentiment remains highly selective, according to a Motilal Oswal Financial Services report. While foreign institutional investors (FIIs) increased allocations to sectors such as financials, services and consumer durables, they continued to trim exposure to information technology, automobiles, oil & gas, metals and FMCG, suggesting that the return of foreign money is still far from broad-based.
“FII flows have started to show signs of improvement, with average daily flows shifting from net selling of around $0.4 billion during the West Asia conflict to net buying of around $0.1 billion following the US-Iran ceasefire announcement,” Motilal Oswal said. “This turnaround has supported the rebound in Indian equities and indicates a gradual improvement in FII sentiment,” the brokerage added.
| Sector | Net FII Flow (US$ mn) | Trend |
|---|---|---|
| Financial Services | +357 | Inflow |
| Services | +306 | Inflow |
| Consumer Durables | +204 | Inflow |
| Consumer Services | +130 | Inflow |
| Real Estate | +85 | Inflow |
| Textiles | +10 | Inflow |
| Capital Goods | -425 | Outflow |
| Information Technology | -788 | Outflow |
| Metals | -961 | Outflow |
| Automobiles | -1,100 | Outflow |
| Oil & Gas | -1,400 | Outflow |
Financials emerge as the biggest buying opportunity in June
Financial services witnessed the strongest foreign inflows during June, attracting nearly $357 million, making it the most preferred sector for FIIs during the month.
Services followed with inflows of $306 million, while consumer durables received $204 million. Other sectors witnessing positive foreign flows included consumer services ($130 million), real estate ($85 million) and textiles ($10 million).
Motilal Oswal noted that consumer services also recorded its first monthly inflow after five consecutive months of outflows, highlighting an improvement in investor sentiment towards the segment.
IT, autos and oil & gas continue to witness heavy selling
Despite the improvement in overall sentiment, foreign investors remained aggressive sellers in several large sectors.
Oil & gas witnessed the largest outflow during June at $1.4 billion, followed by automobiles at $1.1 billion, metals at $961 million and technology at $788 million.
Capital goods, which had attracted foreign buying for six consecutive months, also witnessed its first monthly outflow, with FIIs selling $425 million worth of shares during June.
Meanwhile, FMCG remained under pressure, extending its streak to 11 consecutive months of FII outflows, while technology and telecom have now recorded six straight months of foreign selling, according to the report.
Capital goods and metals remain long-term favourites
While June saw some tactical profit booking, Motilal Oswal said the broader trend for the year continues to favour capital goods and metals.
In calendar year 2026 so far, capital goods has attracted $2.3 billion of net FII inflows, making it the most preferred sector among foreign investors. Metals follows with inflows of $1.4 billion, while services has received $600 million.
The brokerage highlighted that metals has remained the only sector to record positive FII inflows in both CY25 and CY26 year-to-date, signalling continued confidence despite short-term volatility.
“Notably, FIIs turned positive on Capital Goods (+$2.3b) and Utilities (+$0.1b) in CY26YTD after recording net outflows in CY25. Interestingly, FIIs have remained constructive only on Metals (+$1.4b) for the two consecutive years, signaling a continued positive outlook for the sector,” Motilal Oswal said.
| Top Buyers | US$ mn | Top Sellers | US$ mn |
|---|---|---|---|
| Financial Services | +357 | Oil & Gas | -1,400 |
| Services | +306 | Automobiles | -1,100 |
| Consumer Durables | +204 | Metals | -961 |
| Consumer Services | +130 | Information Technology | -788 |
| Real Estate | +85 | Capital Goods | -425 |
Selling pressure eases after four months of persistent outflows
Foreign investors remained net sellers for the fourth consecutive month in June, withdrawing $5.2 billion from Indian equities. However, the pace of selling moderated sharply during the second half of the month.
According to Motilal Oswal, FIIs sold $4.3 billion worth of Indian equities during the first half of June but turned net buyers to the tune of $1.3 billion after geopolitical tensions eased following the US-Iran ceasefire and crude oil prices softened.
The brokerage noted that the moderation in selling reflects improving global risk appetite, better corporate earnings expectations, lower oil prices and a significant correction in Indian equity valuations from their September 2024 highs.
“India was among the positive performers in the key global markets in Jun’26,” Motilal Oswal said. “Easing geopolitical risks, lower crude oil prices, improving corporate earnings, and sharp valuation corrections from CY24 highs, along with India’s valuation premium to other EMs at historic lows, leave fewer reasons for FIIs to remain net sellers for long,” it added.
Financials emerge as the biggest buyer’s choice in June
Financial services emerged as the biggest recipient of foreign inflows during June, attracting $357 million, making it the most preferred sector for FIIs during the month.
Services followed with inflows of $306 million, while consumer durables attracted $204 million. Consumer services also received $130 million, followed by real estate with $85 million and textiles with $10 million, indicating that foreign investors selectively added exposure as geopolitical tensions eased.
Motilal Oswal noted that consumer services witnessed its first monthly inflow after five consecutive months of outflows, highlighting an improvement in investor sentiment towards the sector. But financials still remain the biggest source of outflows this year
Domestic investors continue to offset foreign selling
The report also highlighted the growing role of domestic institutional investors in supporting Indian equities.
While FIIs have sold around $29 billion worth of Indian equities during CY26 so far and more than $60 billion since the September 2024 market peak, domestic institutional investors have continued to deploy record levels of capital.
Motilal Oswal said DII inflows reached $162 billion between October 2024 and June 2026, helping cushion the impact of sustained foreign selling.
As a result, FII ownership in the Nifty 500 has declined to a record low of 17.1% as of March 2026, while DII ownership has climbed to an all-time high of 20.9%, marking a significant shift in the ownership structure of Indian equities.
Outlook: Is the tide turning?
Motilal Oswal believes the recent improvement in foreign flows could mark the early stages of a sentiment recovery, although global macro developments will continue to dictate the pace of capital allocation.
The brokerage said the current cautious stance largely reflects global investors chasing AI-led investment opportunities elsewhere. However, as that investment cycle matures and India’s valuation premium narrows, the country could regain favour among foreign investors.
“The current cautious FII stance largely reflects global capital chasing AI-led opportunities. As the initial AI capex cycle matures, leadership is broadening to secondary AI ecosystem plays, while improving macros are enhancing India’s attractiveness,” Motilal Oswal said.
Conclusion
While foreign investors are yet to turn decisively positive on Indian equities, Motilal Oswal believes the worst phase of FII selling may be behind the market. The brokerage sees improving global macro conditions, easing geopolitical tensions, lower crude oil prices and more reasonable valuations as factors supporting a gradual revival in foreign flows. Even so, the buying remains highly selective.
Disclaimer: The sectoral trends and institutional data discussed above are compiled from a third-party brokerage report and are intended for general market commentary and informational purposes only. This analysis does not carry any specific buy, sell, or hold recommendations for any individual securities or sectoral products, nor does it constitute formal investment advice. Readers should note that foreign institutional flows and macroeconomic indicators are inherently volatile and subject to global market dynamics; please consult a SEBI-registered investment advisor before making any financial commitments.
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