FIIs are back with a bang but why are stocks from only 2 sectors their favourites?

Foreign investors are returning to Indian equities after months of relentless selling but their revival trade is far from broad-based. Technology and telecom stocks have emerged as the clear favourites, while financials, autos, FMCG and energy continue to face selling pressure.

Foreign portfolio investors have poured $8.2 billion into Indian equities since mid-October, including $5.8 billion in just six trading sessions in November. The inflows mark a sharp reversal after FIIs withdrew around $31 billion from Indian equities during the first 10 months of 2026.

Data for October shows that FIIs sold Rs 47,956 crore in the first half of the month before turning buyers in the second half, when they invested Rs 13,113 crore. Even then, the month ended with net selling of Rs 34,843 crore.


Technology and telecom accounted for almost all of the second-half buying. FIIs invested Rs 10,915 crore in IT stocks between October 16 and 31, after buying Rs 2 crore,599 in the first half. Telecom attracted Rs 11,065 crore, compared with selling of Rs 3,928 crore during October 1–15. Services and media also saw modest buying.

The shift suggests that the FII reversal is still a selective rotation rather than a broad vote of confidence in Indian stocks.

Technology and telecom lead the reversal

Motilal Oswal’s sectoral data shows that FIIs bought $1.4 billion of technology stocks and $700 million of telecom stocks in October. These were the two strongest pockets of foreign buying during the month.

By contrast, FIIs sold around $1 billion each of FMCG and financial services and $800 million of automobile stocks. The data highlights a sharp divide in foreign positioning: technology and telecom are attracting fresh interest, while sectors tied more closely to domestic consumption and traditional market leadership remain under pressure.

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FIIs also continued to sell oil and gas, metals, capital goods, healthcare, real estate and consumer services in October. Overall, they remained net sellers of $2.2 billion during the month. However, their activity changed sharply within the month, with $2.8 billion of inflows in the second half following $5 billion of outflows in the first half.

The technology buying marks a notable reversal in foreign positioning. Technology was among the biggest sources of FII outflows in 2025, while it has now become the strongest buying sector in October.

One reason is the changing global technology trade. Jefferies said a moderation or broadening of the concentrated AI trade could encourage investors to allocate money towards relatively under-owned emerging markets such as India.

The brokerage also pointed to questions around whether spending on AI infrastructure and capex has moved too far ahead of potential returns. A cooling in the most crowded AI and semiconductor trades could prompt investors to look for markets with resilient earnings, domestic demand and lower exposure to the global technology concentration.

Why India’s IT sector is back on the radar

The renewed interest in Indian technology stocks does not necessarily mean investors expect an immediate earnings boom. Rather, it reflects a combination of relative valuation comfort, a possible rotation away from crowded AI markets and India’s status as a large, liquid emerging market.

HSBC said India offers “diversification and low volatility in Asian markets dominated by AI stocks.” It upgraded India to overweight after a multi-year valuation reset, while downgrading China to neutral.

Jefferies said Indian largecaps could be the “cleaner play” on a revival in foreign flows because of their liquidity, higher FPI ownership and more reasonable valuations. The brokerage identified Reliance Industries, HDFC Bank, Axis Bank, Kotak Mahindra Bank, UltraTech Cement, Max Healthcare, JSW Energy, DLF, IHCL, Varun Beverages and Sona BLW as potential beneficiaries of an FII revival.

However, those are potential plays on a broader return of foreign capital and not confirmed current purchases by FIIs.

Telecom offers a different kind of India exposure

Telecom’s rise to the top of the FII buying list alongside technology is significant because it gives foreign investors exposure to India’s digital and data economy while remaining linked to domestic demand.

The data shared shows telecom moving from selling of Rs 3,928 crore in the first half of October to buying of Rs 11,065 crore in the second half. That was the strongest sectoral turnaround in the period.

The combined technology-telecom trade also fits the broader global backdrop described by the brokerages. Investors appear to be reassessing highly concentrated AI exposure while looking for companies and markets that can benefit from digital demand, connectivity and structural domestic growth.

Financials remain the biggest obstacle

The return of FIIs will be difficult to call broad-based while financials remain out of favour. Financial services saw the largest selling in the October data, with FIIs selling Rs 9,517 crore across the month. The sector remained a source of outflows even in the second half, although selling moderated to Rs 883 crore from Rs 8,634 crore in the first half.

Motilal Oswal said financials remained the biggest source of FII outflows in CY26 year-to-date, with selling of $13.2 billion. Automobiles followed with $4.9 billion, while FMCG saw outflows of $4.5 billion.

The selling has continued despite a more constructive domestic backdrop. HSBC said India’s credit growth rose 21% year-on-year in October, while its banking team raised its FY27 loan growth estimate to around 18% from 14%.

That divergence suggests foreign investors are not yet willing to rotate back into all of India’s traditional market leaders. Instead, they are choosing sectors where global positioning, valuations and the changing AI trade provide a more immediate catalyst.

Is the FII reversal durable?

Jefferies identified four possible triggers for a sustained revival: a moderation in the AI trade, lower crude prices, potential equity-tax relief and resilient domestic macroeconomic data.

Motilal Oswal similarly said India’s healthy macroeconomic fundamentals, stronger corporate earnings, valuation correction and robust domestic liquidity could support a more sustained revival in FII interest.

But the immediate evidence remains narrow. FIIs are buying technology and telecom, while continuing to reduce exposure to several large domestic sectors. Until financials, autos and FMCG also begin to attract consistent foreign buying, the latest inflows may represent a tactical repositioning rather than a full-scale return to the India trade.

(Data: Ritesh Presswala)

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