Foreign portfolio investors (FPIs) have sharply pared exposure to India’s financial sector this year. According to data from the National Securities Depository (NSDL), FPIs sold equities worth about ₹2.25 lakh crore during January-May 2026, with the financial services sector alone accounting for over half of the outflows at nearly ₹1.15 lakh crore.
Overall, financial services, information technology (IT), and FMCG together accounted for more than 72.5% of total FPI selling during the period.
According to Nirav Karkera, Head of Research at W by Groww, the heavy selling in financial services reflects the sector’s dominant weight in India’s listed universe as well as its high level of foreign ownership. He added that part of the outflows may also be attributable to profit-booking after strong gains in the sector.
Agreed V K Vijayakumar, chief investment strategist at Geojit Investments, adding that financial services account for nearly 32% of foreign investors’ assets under custody (AUC) in India. “If foreign investors have to sell in size, they have to sell financials,” Vijayakumar said.
AI Reallocation
The IT sector witnessed the second-highest FPI outflows at ₹26,800 crore. Karkera attributed the selling to the derating of Indian IT stocks amid changing dynamics in the artificial intelligence (AI) value chain. He said foreign investors are reallocating capital to technology companies in developed markets and emerging economies such as Taiwan and South Korea to gain exposure to AI-led growth opportunities.
Vijayakumar said subdued growth and pressure on profitability have weighed on Indian IT companies, with concerns intensifying following the launch of newer AI models such as Anthropic’s Claude.
FMCG stocks also witnessed substantial foreign selling of over ₹21,600 crore. Karkera said the outflows reflect the sector’s sizeable presence in listed markets and a mixed growth outlook. Vijayakumar attributed the selling to elevated valuations, arguing that investors can find cheaper stocks with stronger growth prospects in several overseas markets.
Other sectors that recorded notable FPI outflows included consumer services, automobiles and auto components, healthcare, telecommunications, and oil, gas and consumable fuels.
Amid the broader risk-off sentiment, FPIs were net buyers in capital goods, metals and mining, and power.
Valuation Cooling Off
Foreign investor selling, however, moderated significantly in May compared with the heavy outflows recorded in March and April.
Karkera said much of the portfolio reallocation has already taken place over the past few quarters. Going forward, he expects selling pressure to ease as foreign investors seek to avoid becoming underweight on India. He cited moderating valuations, the possibility of tax concessions, resilient macroeconomic fundamentals, and expectations of an earnings recovery as factors that could improve sentiment.
Vijayakumar also expects foreign inflows into mid-cap stocks to strengthen, supported by relatively attractive valuations and superior growth prospects.