Foreign institutional investors (FIIs) have finally turned buyers in Indian equities after several months of heavy selling, potentially marking an early shift in sentiment toward the market. Motilal Oswal Financial Services said FIIs invested $2.5 billion in Indian equities in July 2026, their highest monthly inflow in 13 months, while domestic institutional investors (DIIs) continued to remain supportive with $3.7 billion of inflows during the month.
The turnaround comes after a prolonged period of foreign selling. Since the September 2024 market peak, FIIs had remained persistent net sellers, with cumulative outflows of $57 billion, including about $27 billion in calendar year 2026 to date. Motilal Oswal said the return of foreign buying was significant because it came after four months of sharp selling between March and June 2026.
At the same time, the brokerage cautioned that the sustainability of foreign inflows would remain important monitorable. Improving macroeconomic fundamentals, stronger corporate earnings growth, moderating valuations and easing energy-price volatility have improved India’s investment case, but geopolitical uncertainties, a moderation in the artificial-intelligence-led global equity rally and volatility in global bond yields could still affect foreign investor sentiment.
India market outlook: FII selling may be losing steam
Motilal Oswal said Indian equities had been trading in a tight range for around 22 months amid heightened global volatility. Although India had underperformed global peers in calendar year 2026 to date, the market had rebounded from the March-May lows and posted gains for the second consecutive month.
The recovery, however, has not been uniform. Mid-cap and small-cap indices had reached fresh all-time highs, while the Nifty 50 remained around 5% below its September 2024 peak. Motilal Oswal attributed this divergence largely to FIIs’ sustained underweight position in Indian index heavyweights.
| India market and FII-flow snapshot | Data |
| FII outflows since September 2024 market peak | $57 billion |
| FII outflows in CY2026 to date | $26.5 billion |
| FII inflows in July 2026 | $2.5 billion |
| DII inflows in July 2026 | $3.7 billion |
| FII inflow in February 2026 | $1.7 billion |
| Nifty 50 vs September 2024 peak | ~5% below |
| Sectors with FII inflows in July | 12 of 20 |
Source: Motilal Oswal Financial Services, NSDL.
Motilal Oswal said the July reversal was particularly notable because FIIs had been net sellers in four consecutive months before turning buyers in July. The brokerage said 12 of the 20 sectors recorded FII inflows during the month, compared with the broad-based selling seen in June.
“FII flows turned positive after four months of record selling,” Motilal Oswal said in its India Strategy report.
Consumer services, healthcare emerge as top FII bets
The biggest change in sector positioning came in consumer services and healthcare.
Motilal Oswal said foreign investors were most bullish on Consumer Services, which attracted $1.1 billion in July, followed by Healthcare, which received $0.8 billion. Together, the two sectors accounted for around 90% of total FII inflows during the month.
Consumer durables also attracted strong buying, with inflows of $768 million, while metals received $512 million. Technology, services and real estate also recorded positive flows.
July 2026: Where FIIs put their money
| Sector | FII flow in July 2026 |
| Consumer Services | +$1.063 billion |
| Healthcare | +$809 million |
| Consumer Durables | +$768 million |
| Metals | +$512 million |
| Technology | +$352 million |
| Services | +$250 million |
| Real Estate | +$186 million |
| Construction | +$128 million |
| Textiles | +$48 million |
| Chemicals | +$44 million |
| Diversified | +$3 million |
| Financials | -$74 million |
| FMCG | -$65 million |
| Utilities | -$304 million |
| Automobile | -$472 million |
| Telecom | -$598 million |
| Capital Goods | -$655 million |
Source: National Securities Depository and Motilal Oswal. Figures are based on the July 2026 sectoral FPI-flow chart in the report.
The July buying also marked a change in sectors that had previously struggled to attract foreign capital. Motilal Oswal noted that FIIs turned positive on healthcare, technology and real estate after several months of weak or volatile flows. Metals also saw a sharp rebound in buying after around $1 billion of outflows in June.
Capital goods, telecom and automobiles under pressure
The foreign buying revival was not broad-based across every sector. Capital Goods recorded the largest outflow in July at $655 million, followed by Telecom at $598 million and Automobiles at $472 million. Motilal Oswal said Capital Goods saw its second consecutive month of FII outflows after a strong five-month buying streak.
Telecom and Oil & Gas also remained under pressure, with the two sectors recording their sixth and fifth consecutive months of outflows, respectively. FMCG saw its 12th consecutive month of FII outflows, although the selling pressure eased in July.
This means the July turnaround should not yet be read as a wholesale rotation into Indian equities. Instead, the data suggests that foreign investors have started becoming selective, with buying concentrated in a handful of sectors rather than spread evenly across the market.
CY26 FII flows: Financials still see selling pressure
Despite the July recovery, the broader calendar-year picture remained negative.
Foreign investors had remained net sellers in 14 of 20 sectors during calendar year 2026 to date, according to Motilal Oswal. Financial Services had seen the sharpest outflows at $11.9 billion, followed by Automobiles at $3.7 billion and Technology at $3.4 billion.
On the other side, Metals had attracted the most foreign buying at $1.9 billion, followed by Capital Goods at $1.6 billion and Services at $0.9 billion.
| Sector | CY2026 FII flow to date | Position |
| Metals | +$1.9 billion | Highest inflow |
| Capital Goods | +$1.6 billion | Net inflow |
| Services | +$0.9 billion | Net inflow |
| Financial Services | -$11.9 billion | Largest outflow |
| Automobiles | -$3.7 billion | Major outflow |
| Technology | -$3.4 billion | Major outflow |
| FMCG | -$3.0 billion | Seven-month outflow streak |
| Telecom | -$2.5 billion | Seven-month outflow streak |
Source: NSDL and Motilal Oswal.
Motilal Oswal said FMCG and Telecom had reported outflows in all seven months of calendar year 2026, while Capital Goods, Metals and Services had recorded inflows in five, five and four months, respectively.
The contrast with the calendar year 2025 is also notable. Telecom had been the most preferred FII sector in 2025, attracting $5.5 billion, while Technology, FMCG and Utilities had witnessed outflows of $8.6 billion, $4.2 billion and $3 billion, respectively.
Why foreign investors could return to Indian equities
Motilal Oswal identified several factors that have improved India’s risk-reward profile.
First, geopolitical risks have been easing. Second, energy prices have become less volatile. Third, corporate earnings growth remains supportive. Fourth, valuations have corrected from their calendar year 2024 peaks. Together, these factors have made Indian equities more attractive after the prolonged period of foreign selling.
The brokerage also highlighted a structural change in foreign capital allocation. Despite the sharp FII exit from the secondary market, foreign investors have remained active in India’s primary market through initial public offerings and private placements, deploying a broadly similar quantum of capital.
This suggests that the issue has not necessarily been a complete loss of confidence in India. Instead, foreign investors have increasingly directed capital toward new issuances and primary-market opportunities, while domestic institutional and retail investors have become more dominant in the secondary market since 2021.
India vs global markets: Domestic strength remains an advantage
Motilal Oswal said India’s improving macroeconomic fundamentals and corporate earnings growth were strengthening the investment case even as global markets remained volatile.
The brokerage pointed to easing energy-price volatility and moderating valuations as additional positives. However, it warned that geopolitical uncertainty, a slowdown in the artificial-intelligence-led global equity rally and persistent volatility in global bond yields could affect the durability of the FII recovery.
The domestic flow picture provides another layer of support. While FIIs bought $2.5 billion in July, DIIs invested $3.7 billion, meaning domestic institutional flows remained positive even during the period of intense foreign selling.
FII flows vs sector positioning: What the July shift tells investors
The July data points to a meaningful change in foreign investor preferences.
| Theme | July 2026 FII stance | CY2026-to-date stance |
| Consumer Services | Strongly positive | Not specified in report |
| Healthcare | Positive | Not specified in report |
| Consumer Durables | Positive | Not specified in report |
| Metals | Positive | Strongly positive |
| Technology | Positive | Negative |
| Real Estate | Positive | Not specified in report |
| Capital Goods | Negative | Positive overall |
| Financial Services | Negative | Largest outflow |
| Automobiles | Negative | Major outflow |
| Telecom | Negative | Persistent outflow |
| FMCG | Negative | Persistent outflow |
Source: Motilal Oswal. “Not specified” means the report did not provide a corresponding CY2026-to-date figure in the cited section.
The divergence between the monthly and year-to-date numbers is important. Capital Goods, for example, remained one of the biggest sources of foreign buying over the broader calendar-year period, but investors turned sellers in July. Technology moved in the opposite direction, with fresh buying in July after being one of the largest sources of year-to-date outflows.
That suggests foreign positioning was becoming more dynamic rather than following a simple sector-wide trend.
Can the FII recovery sustain the market uptrend?
Motilal Oswal’s view was constructive, but not unconditional.
The brokerage said the combination of easing geopolitical risks, moderating energy prices, improving corporate earnings and a meaningful correction in valuations from calendar year 2024 peaks had “materially enhanced the market’s risk-reward profile.”
“With the FII flows turning positive after four months of record selling, we expect the sentiment to remain positive for Indian equities,” Motilal Oswal said.
Conclusion
The key question now is whether July’s $2.5 billion inflow marks the beginning of a sustained foreign-buying cycle or simply a temporary pause in a longer period of underweight positioning.
Domestic institutional flows are already providing support, while even a gradual return of foreign capital could add another source of liquidity to Indian equities. But Motilal Oswal stressed that geopolitical developments, global bond yields and the direction of the artificial-intelligence-led global rally remain important risks to the sustainability of the FII turnaround.
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