FII outflows lose steam in June: Factors attracting investors and is the worst behind? 

Foreign institutional investors (FIIs) may be beginning to return to Indian equities after an extended period of heavy selling, according to Motilal Oswal Financial Services' latest India Strategy report. The brokerage said improving global macroeconomic conditions, easing geopolitical tensions and relatively attractive valuations are helping revive foreign investor sentiment.

The report noted that FIIs have sold close to $60 billion worth of Indian equities since the market peaked in September 2024, making foreign outflows one of the key factors behind the market's subdued performance over the past 21 months. During the same period, domestic institutional investors (DIIs) injected a record $162 billion into equities, offsetting much of the foreign selling and providing stability to the market.

Foreign selling intensified after geopolitical tensions escalated in West Asia earlier this year. Between March and June 2026, FIIs pulled out nearly $27.4 billion, contributing to a correction of about 15% in Indian equities from their peak. However, sentiment improved notably following the US-Iran ceasefire and the subsequent decline in crude oil prices. During the second half of June, FIIs turned net buyers with inflows of $1.3 billion, reversing net outflows of $4.3 billion recorded in the first half of the month.

June outflows moderate

Although June marked the fourth consecutive month of net FII outflows, the pace of selling eased considerably. Foreign investors withdrew a total of $5.2 billion during the month, suggesting that selling pressure may be losing momentum.

Sector-wise, Oil & Gas witnessed the highest outflows at $1.4 billion, followed by Automobiles ($1.1 billion), Metals ($1 billion) and Technology ($0.8 billion). In contrast, FIIs continued to accumulate Financial Services ($0.4 billion), Services ($0.3 billion) and Consumer Durables ($0.2 billion).

The report also highlighted changing sectoral trends. Capital Goods registered its first monthly FII outflow in six months, while Consumer Services attracted net inflows after witnessing five straight months of selling. Meanwhile, FMCG extended its streak of foreign outflows to 11 consecutive months, while Technology and Telecom each logged six months of sustained FII selling.

Financials and technology remain the biggest laggards in CY26

Foreign investors have remained net sellers for most of calendar year 2026. Following a record monthly outflow of $12.6 billion in March, FIIs have sold a cumulative $29.2 billion worth of Indian equities so far this year, with only February recording net inflows of $2.5 billion.

Among sectors, Financial Services saw the largest outflows at $11.8 billion, followed by Technology at $3.7 billion. On the other hand, Capital Goods attracted inflows of $2.3 billion, Metals received $1.4 billion and Services garnered $0.6 billion, making them the preferred sectors for foreign investors during the year.

Technology, FMCG and Telecom have recorded FII selling in every month of CY26, while Capital Goods, Metals and Services have consistently attracted foreign investments, reflecting stronger investor confidence in these segments.

Domestic investors gain 

The report highlighted a structural shift in ownership patterns within Indian equities. FII ownership in the Nifty 500 declined to a record low of 17.1% in March 2026, while domestic institutional ownership climbed to an all-time high of 20.9%, underscoring the increasingly important role of domestic investors in supporting the market.

Factors leading to foreign inflows

Motilal Oswal believes the environment for foreign investors is gradually turning favourable. Easing geopolitical uncertainties, softer crude oil prices, improving corporate earnings and more reasonable market valuations are expected to support a recovery in FII flows.

The brokerage also pointed out that India's valuation premium over other emerging markets has narrowed to historically low levels, addressing one of the key concerns among global investors. It added that average daily FII activity has improved meaningfully, shifting from net selling of nearly $0.4 billion during the peak of the West Asia conflict to net buying of around $0.1 billion following the US-Iran ceasefire, indicating that overseas investor confidence is beginning to recover.