Goldman Sachs warns FII re-buying unlikely in ‘near term’ – Flags risks in banks, realty 

“While the bulk of foreign selling was likely behind us, foreign re-buying could still be impeded in the near-term,” the firm wrote in the report, citing weak earnings visibility and unattractive growth-adjusted valuations compared with North Asia.

Foreign ownership dropped to around 16% in March 2026, slipping below the 17% held by domestic institutional investors such as mutual funds and insurers. The sell-off worth $22 billion this year had already surpassed the full-year record of 2025.

Bulk of foreign selling done, inflows to take time

Goldman Sachs said the bulk of foreign withdrawals was likely over, pointing to cumulative outflows of $53 billion since September 2024. The intensity of selling, about 0.9% of market capitalisation, had already exceeded that during the 2009 global financial crisis.

The firm said, “Various approaches using flows, positioning and ownership trends suggest foreign flows are now close to downside scenarios.”

However, the report cautioned that renewed inflows could wait until earnings expectations stabilise and India’s relative valuations ease. Foreign capital did not return immediately after the early-April fall in crude oil prices, despite heavy selling during the March rally.

Sectors that lost foreign shareholding

Banks, real estate, and consumer-retail and services sectors witnessed the sharpest decline in foreign holdings during the March quarter. Large-capitalization shares bore the brunt as foreign ownership there sank to a decade low.

In banks, foreign shareholding fell by 200 basis points quarter-on-quarter to 32%, marking the steepest pullback among sectors. Real estate and consumer-retail services each lost about 100 basis points of foreign ownership.

Goldman Sachs wrote, “The decline in foreign share was led by large caps, where ownership fell to its 10-year low. Across sectors, the quarter-on-quarter decline was the most pronounced in banks, real estate and consumer retail and services.”

The report estimated another $4–5 billion of potential foreign selling in a worst-case scenario if global tensions were prolonged, but noted that the intensity of the outflows was already close to exhaustion.

Sectors that gained foreign shareholding

Though foreign investors pared exposure in rate-sensitive sectors, a few cyclical pockets saw fresh buying. Metals and mining, utilities, and industrials recorded quarter-on-quarter increases of 10 to 115 basis points in foreign ownership.

Foreign holdings in metals and mining rose from 12% to 13%, while utilities moved higher to 13% and industrials to the same level.

“Metals, utilities and industrials saw foreign ownership rise,” Goldman Sachs said, attributing the moves partly to value rotation and lower relative earnings risks from oil price volatility.

Domestic mutual funds hit record highs

Domestic institutional investors more than offset the foreign exodus. The share of mutual funds in total equity ownership climbed to 11.4%, its highest to date, according to filings analysed by Goldman Sachs. Retail participation, in contrast, slipped to 9.2% of market capitalisation from 9.6% in the previous quarter.

“Among domestic participants, mutual fund ownership rose to fresh highs in the March quarter, whereas direct retail participation declined,” the report said.

Promoter holdings stayed unchanged at about 50%, split roughly between 42% Indian and 8% foreign founders or promoters.

Stocks with lighter foreign positioning could outperform

For medium-term investors, Goldman Sachs identified twelve stocks where foreign ownership and fund positioning were light, suggesting potential outperformance once sentiment improved.

Stocks with lighter foreign positioning could outperform

For medium-term investors, Goldman Sachs identified twelve stocks where foreign ownership and fund positioning were light, suggesting potential outperformance once sentiment improved.

These names traded at what the brokerage described as “reasonable multiples” and stood to benefit when global equity funds returned to India. The median forward earnings growth across the basket was 14%, with next-twelve-month price-to-earnings at around 43 times.

Goldman Sachs identified a basket of 12 stocks where foreign ownership and fund positioning remained relatively light, suggesting potential upside once foreign inflows returned. The list included consumer major Hindustan Unilever (HUL), which had foreign ownership of 27% despite a 1.6 percentage-point quarterly decline, and industrial giant Larsen & Toubro (L&T), where foreign holding stood at 20% after falling 1.3 percentage points sequentially.

Among financials, Bank of Baroda and Bajaj Holdings & Investment featured on the list, while consumer-facing names included Bajaj Auto, Trent, Swiggy, and fintech player One 97 Communications (Paytm). Paytm saw the sharpest quarterly decline in foreign ownership at 2.3 percentage points, though Goldman Sachs projected strong earnings growth expectations for the company.

The brokerage also highlighted industrial and manufacturing-linked plays such as Siemens, Bosch, Solar Industries India, and tyre maker MRF. Foreign ownership across these companies ranged between 20% and 27%, with most witnessing either flat or declining quarterly holdings. Goldman Sachs said the basket traded at “reasonable multiples” and could benefit disproportionately when global equity funds resumed allocations toward India.

These names traded at what the brokerage described as “reasonable multiples” and stood to benefit when global equity funds returned to India. The median forward earnings growth across the basket was 14%, with next-twelve-month price-to-earnings at around 43 times.

Defensive picks in focus

Goldman Sachs reiterated its constructive stance on financials and consumer-staple stocks. These sectors, it said, had “low earnings sensitivity to oil shocks and traded at historically low valuations.” Past oil spikes showed that staples, information technology, energy, and financials were relatively insulated compared with materials and industrials.

The report noted, “Staples and financials have low vulnerability to energy supply shocks, and are trading at historically low multiples.”

Where foreign and mutual fund holdings diverge

Some of the most widely owned stocks by foreign institutional investors remained banking heavyweights such as ICICI Bank (53%), HDFC Bank (52%), and Axis Bank (44%). Meanwhile, mutual funds held large exposures in names like Coforge (40%), Federal Bank (38%), and Max Financial Services (37%).

Retail ownership remained highest in YES Bank and IDFC First Bank at 28% each, followed by Tata Power and Tata Motors in the 20% range, showing a tilt toward public-sector and household-brand counters.

Conclusion

The May 2026 India Strategy study by Goldman Sachs highlighted a critical turning point – the record foreign exodus from Indian equities appeared to be ending, but meaningful inflows might not resume until earnings confidence improved.

With domestic mutual funds at record ownership levels and select blue-chip stocks trading at fair valuations, the market’s rebalancing between domestic and foreign capital was already underway, setting the stage for the next phase once global positioning shifted.

Disclaimer: Investment analysis and market commentary provided here are for informational purposes only and do not constitute an offer, solicitation, or recommendation to buy or sell any securities. Given the specific mention of institutional holdings and equity projections, readers should consult a SEBI-registered investment advisor before making any financial decisions. Market investments are subject to inherent risks, and past performance or ownership trends reported by brokerage firms are not indicative of future results.

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