Inside the FII reallocation: Why is foreign capital backing BFSI while dumping auto and IT stocks?

FII action in June: Primary market Vs secondary market investment

FIIs sold equities worth Rs 29,170 crore ($3 billion) in June , while DIIs purchased Rs 85,800 crore ($9 billion) worth of equities, helping the Nifty rise 1.4% month-on-month despite persistent foreign outflows.

JM Financial said foreign investors continued to prefer India’s primary market over the secondary market. During June, FIIs invested Rs 6,000 crore in primary issuances but withdrew Rs 35,170 crore from secondary markets, resulting in net outflows of Rs 29,170 crore. Over the last 12 months, FIIs invested Rs 72,800 crore in India’s primary market while pulling out Rs 4,52,800 crore from the secondary market, highlighting continued participation in new issuances despite caution in listed equities.

“FIIs remain net sellers in Jun’26,” JM Financial Ltd. said. “In Jun’26, FIIs were net sellers to the tune of INR 291.7bn ($3bn) while Nifty rose 1.4% MoM after a 1.9% fall in May’26.” The brokerage added that “FIIs remained net sellers in Jun’26, marking the fourth consecutive month of net FII outflows.”

BFSI emerges as the biggest beneficiary of foreign inflows

JM Financial pointed out that  BFSI attracted net FII inflows of$357 million, making it the largest recipient of foreign capital during the month. Consumer durables followed with $204 million, while Services attracted $130 million and Realty received$85 million.

“BFSI logged inflows of $357 million in Jun’26, followed by Durables at USD 204mn, Services at USD 130mn and Realty at USD 85mn,” JM Financial said.

The brokerage also highlighted that BFSI continues to dominate foreign institutional portfolios, accounting for 30.8% of total FII assets under custody in India, up from 29.5% in May. Capital Goods remained the second-largest sector at 7.5%, followed by Pharma (7.4%), Auto (7.3%) and Oil & Gas (6.8%).

Together, these five sectors account for nearly 60% of total FII assets in India. While FII portfolio allocation increased sequentially in BFSI and Pharma, it declined in Capital Goods, Auto and Oil & Gas, JM Financial said.

Oil & Gas, Auto and IT witness the sharpest foreign selling

While select sectors attracted inflows, JM Financial said foreign investors remained heavy sellers across several cyclical and globally linked sectors.

The brokerage said Oil & Gas witnessed the largest FII outflows at $1.40 billion during June, followed by Auto ($1.10 billion), Metals ($961 million), Information Technology ($788 million), Power ($668 million), FMCG ($585 million), Capital Goods ($425 million), Pharma ($323 million) and Chemicals ($136 million).

Compared with May, FIIs turned buyers in BFSI, Consumer Durables, Services and Realty, while they turned net sellers in Metals, Capital Goods and Pharma, indicating a noticeable shift in sectoral preferences during the month.

India’s weight in MSCI Emerging Markets Index edges higher

JM Financial said India’s representation in global emerging market benchmarks improved modestly during June.

The brokerage noted that India’s weight in the MSCI Emerging Markets Index increased to 11.1% in June from 10.9% in May. However, it remained significantly below 18.1% recorded in June 2025, reflecting changes in index composition and relative market performance.

Foreign investors continue to favour primary market issuances

Despite sustained selling in secondary markets, JM Financial said FIIs have continued to participate actively in India’s primary market.

The brokerage noted that primary issuances attracted Rs 72,800 crore of net FII inflows over the past year, suggesting overseas investors remain constructive on India’s long-term corporate growth story even as they remain cautious on listed market valuations.

The divergence between primary and secondary market flows also highlights selective capital allocation by foreign investors rather than a complete withdrawal from India, JM Financial said.

Domestic institutions continue to offset foreign selling

JM Financial said domestic investors have emerged as the biggest stabilising force for Indian equities as FII ownership continues to decline.

The brokerage noted that FII ownership of Indian equities fell to 14.2% at the end of June from 14.4% in May and has steadily declined from 20% in June 2016. In contrast, domestic institutional ownership has continued to rise, reaching 18.7% as of March 2026.

Since December 2024, domestic institutional investors have consistently owned a larger share of Indian equities than FIIs, underscoring the structural shift in ownership driven by sustained domestic savings and mutual fund inflows.

Despite the decline in ownership, FII equity assets under custody rose 1.4% month-on-month to Rs 68.6 lakh crore at the end of June from Rs 67.7 lakh crore in May, reflecting gains in underlying market values.

Conclusion

JM Financial pointed out that  BFSI emerged as the biggest beneficiary of fresh foreign inflows and continued to dominate FII portfolios, sectors such as Oil & Gas, Auto, Metals and IT witnessed significant selling pressure. The brokerage also highlighted that foreign investors continue to back India’s long-term growth through sustained participation in primary market issuances, even as they remain selective in the secondary market.

Disclaimer: This article contains general market analysis and sector-specific data based on historical institutional investment flows. It is for informational and educational purposes only and does not constitute a specific investment recommendation, buy/sell signal, or financial advice. Readers should consult a SEBI-registered investment advisor before making any financial decisions based on institutional market trends. This disclaimer has been generated using AI to support user well-being and responsible content consumption.