Foreign institutional investors (FIIs) have sharply reduced their exposure to India’s two largest market sectors, financials and information technology, as persistent outflows and a broad market correction continue to reshape foreign portfolio allocations.
According to NSDL data, FII allocation to the information technology sector fell to 5.6 per cent of total equity holdings in May, the lowest level since records began in 2012. The sector’s weighting has declined by 185 basis points since the start of 2026 and by nearly 500 basis points since the beginning of 2025.
In absolute terms, foreign investors held around USD 40 billion worth of Indian IT stocks in May, down from approximately USD 60 billion at the start of 2026 and USD 81 billion at the beginning of 2025.
Financial stocks also witnessed a significant reduction in foreign ownership. FII allocation to the sector dropped to 29.5 per cent in May, the lowest level in 16 months and down 285 basis points from the start of the year.
The value of foreign holdings in financial stocks stood at around USD 210 billion in May, compared with approximately USD 250 billion at the beginning of 2026.
Together, financial and information technology stocks accounted for nearly USD 15.2 billion of foreign outflows so far this year, according to NSDL’s fortnightly data. The two sectors represented nearly 55 per cent of the total FII equity outflow of USD 28 billion from Indian markets during the period.
Financial stocks have faced pressure from concerns over rising global inflation, elevated crude oil prices and their potential impact on India’s economic growth outlook.
Information technology companies, meanwhile, have struggled amid weaker revenue growth expectations, subdued client spending in key markets such as the United States and Europe, and growing concerns that artificial intelligence could disrupt traditional outsourcing-led business models.
Market participants note that both sectors carry substantial weight in benchmark indices and account for a significant share of foreign institutional ownership. As a result, broad-based portfolio de-risking and basket selling by overseas investors tend to disproportionately affect financial and IT stocks, resulting in larger reported outflows than in other sectors.
The sustained selling has also weighed on overall foreign ownership in Indian equities. Total FII equity assets stood at USD 710 billion at the end of May, down 14 per cent from USD 826 billion at the end of December 2025 and USD 831.5 billion at the end of December 2024.
The trend highlights a significant shift in global capital flows, with foreign investors increasingly reallocating funds towards AI-driven markets such as Taiwan, South Korea and the United States, while reducing exposure to sectors that have traditionally dominated India’s equity benchmarks. |
