FPIs bet on financial stocks as outflows reverse; shares they still avoid

The return of foreign inflows to domestic equities since the second half of June has largely been a one-sector story, with financial stocks cornering most of the buying. While the second fortnight of June attracted net foreign inflows of Rs 14,109 crore, the financial sector alone accounted for Rs 14,634 crore of FPI buying, according to data compiled from central securities depository NSDL.

The sharp reversal came after FPIs had sold Rs 11,263 crore worth of financial stocks in the first fortnight of June.

Despite the renewed buying in the later half, FPI ownership of Indian stocks continued to decline on a monthly basis, with stakes falling to 14.2 per cent in June from 20 per cent in June 2016. In contrast, domestic institutional investor (DII) ownership has steadily risen over the years, reaching 18.7 per cent in March 2026, JM Financial noted.

Data showed that, beyond financials, FPIs bought construction stocks worth Rs 3,484 crore in the second half of June, followed by consumer services (Rs 3,081 crore), services (Rs 2,592 crore), consumer durables (Rs 2,564 crore), real estate (Rs 1,893 crore) and healthcare (Rs 1,435 crore).

Within financials, Emkay Global prefers small- and mid-sized private banks such as IDFC First Bank and RBL Bank, while staying away from large private lenders and PSU banks.

Among private lenders, Emkay said ICICI Bank Ltd remains the strongest franchise in the sector but offers limited upside at 2.4 times book value. It believes HDFC Bank Ltd and Axis Bank Ltd are relatively inexpensive but need to deliver consistent growth to unlock meaningful upside. Kotak Mahindra Bank Ltd has started showing growth, but the brokerage believes its conservative approach, capital drag and recent management change continue to weigh on the investment case.

Among non-banking financial companies (NBFCs), Kotak Institutional Equities expects companies under its coverage to report strong June quarter earnings, with core profit before tax rising 22-58 per cent and earnings growing 12-69 per cent year-on-year. The brokerage attributed the outlook to healthy loan growth, stable asset quality despite seasonal weakness, and year-on-year net interest margin expansion on the back of a higher borrowing-cost base last year.

"With improving liquidity and easing overhang on fuel prices, we expect positive commentary and an upgrade in guidance," it said.

Stocks that FPIs trimmed stakes to

On the other hand, metals and mining remained the biggest laggards, with FPIs pulling out Rs 4,371 crore in the second half of June. Power and oil & gas stocks also witnessed FPI outflows to the tune of Rs 3,743 crore and Rs 2,789 crore, respectively.

Despite the turnaround in the second half, FPIs remained net sellers in June, extending their selling streak to a fourth consecutive month. They sold equities worth Rs 29,170 crore during the month, even as the Nifty gained 1.4 per cent after declining 1.9 per cent in May.

In July, they are net buyers to the tune of Rs 2,985 crore so far.