FIIs now backing India's consumers, not capex: July data reveals major rotation

Foreign investors’ return to Indian equities in July concealed a stark shift in positioning as money poured into consumer-facing businesses even as capital goods, telecom and automobile stocks continued to be sold.

Consumer services, healthcare and consumer durables attracted a combined Rs 25,298 crore during the month, according to sectoral foreign portfolio investment data from NSDL. That was about 125% of the roughly Rs 20,200 crore that FIIs invested in equities overall, as purchases in those three sectors were partly financed by withdrawals elsewhere.

Consumer services led the buying with inflows of Rs 10,201 crore, followed by healthcare at Rs 7,755 crore and consumer durables at Rs 7,342 crore.

The scale of the rotation becomes clearer against June. The same three sectors had collectively received just Rs 93 crore that month: consumer services and consumer durables recorded inflows of Rs 1,229 crore and Rs 1,930 crore, respectively, while healthcare saw an outflow of Rs 3,066 crore.

Overall foreign flows swung by nearly ₹69,500 crore between the two months, from an equity outflow of about ₹49,300 crore in June to an inflow of roughly ₹20,200 crore in July. The rebound, however, was far from a broad risk-on trade.

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Vallum Capital described the move as a “defensive repositioning rather than a broad India bull call,” adding that “foreign money is backing India’s household, not India’s capex cycle.”

Capital goods suffered the steepest July outflow at Rs 6,275 crore. Telecom stocks lost Rs 5,725 crore, while automobiles recorded withdrawals of Rs 4,564 crore. Together, those three sectors saw Rs 16,564 crore leave during the month.

Capital goods selling intensified from an outflow of Rs 4,028 crore in June. Telecom also deteriorated sharply from a ₹347 crore withdrawal. Selling in automobiles moderated from June’s Rs 10,368 crore outflow but remained substantial.

The divergence indicates that foreign investors are becoming more selective rather than uniformly bullish on India. Their allocations favoured businesses linked directly to household spending and healthcare, where Vallum said earnings visibility is higher and exposure to global macroeconomic risks is lower.

IT provided another signal of the shift. The sector moved from an outflow of Rs 7,466 crore in June to an inflow of Rs 3,358 crore in July, representing a monthly turnaround of ₹10,824 crore. Vallum linked the reversal to a stabilising dollar and early artificial intelligence driven earnings upgrades.

The move away from cyclicals was not absolute. Metals and mining swung from a Rs 9,093 crore outflow in June to a Rs 4,937 crore inflow in July. Construction materials attracted Rs 2,445 crore, while realty received Rs 1,793 crore. Construction itself, however, saw an outflow of Rs 1,199 crore.

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Selling also persisted in power, which recorded withdrawals of Rs 2,863 crore, and financial services, where FPIs pulled out Rs 694 crore. Fast-moving consumer goods saw an outflow of Rs 628 crore, suggesting the consumer allocation was directed more toward discretionary services, healthcare and durable goods than traditional staples.

Vallum’s consumption thesis rests on the economic indicators cited in its note. Private final consumption expenditure grew 7.1% in the final quarter of fiscal 2026, while full-year consumption expanded 7.7%, compared with 5.8% in the previous year. Private consumption’s share of gross domestic product rose to 61.5%.

Retail growth cited by Vallum reached 10% in March and 9% in February, reinforcing the case for discretionary categories including retail, travel, hospitality and services.

The firm said July’s allocation also echoed a broader international shift toward domestic demand and defensive growth. Global healthcare ETFs received about $6.8 billion in November 2025, their largest monthly inflow in five years, according to figures cited in the note.

HSBC's Prerna Garg favours quality growth names in domestically driven sectors like financials, autos, retail, and hospitals where demand remains firm.

"Private banks and real estate look relatively attractive after their underperformance, while diversified NBFCs stand out for their growth profile. We also like selected industrials benefiting from government policy support. Within consumption, we prefer consumer discretionary over staples, which look more expensive and are more exposed to rural demand and rising food inflation," Garg said.

The global brokerage firm is of the view that FII outflows linked to AI rotation have largely played out. More than 80% of active GEM funds are underweight India, so even a move back to neutral from that group alone could drive around $25 billion of inflows.

(Data: Ritesh Presswala)