FIIs dump telecom for 8th straight month, outflows cross Rs 32,000 crore. Are stocks set for rebound?

Foreign investors' brief return to Indian equities appears to be losing steam, with FPIs turning sellers again in September after two consecutive months of inflows.

After buying Rs 11,045 crore in July and Rs 10,231 crore in August, foreign portfolio investors have resumed selling in the secondary market. NSDL data up to September 19 shows FPI outflows of Rs 23,676 crore through the exchanges.

But one sector has remained firmly out of favour. Telecom has seen FII outflows every month this year. August alone saw nearly Rs 5,000 crore leave the sector, taking total CY26 outflows to Rs 28,131 crore, according to NSDL data. Further, fortnightly data for September shows that foreign investors have sold another Rs 4,474 crore during the first two weeks.


The sustained selling has also been reflected in stock performance. Bharti Airtel shares have fallen 15% since the beginning of the year, while Indus Towers is down over 16%. Vodafone Idea, however, has been an outlier, rising over 40% in 2026.

What's nagging telecom stocks?

Telecom operators continue to face pressure from the heavy investments required for pan-India 5G infrastructure and spectrum renewals, which are weighing on near-term free cash flows. At the same time, actual 5G revenue generation through ARPU growth is scaling much slower than projected.

Legacy issues remain another overhang. In particular, ongoing disputes over Adjusted Gross Revenue (AGR) dues and statutory payout timelines continue to pose the potential for sudden legal and financial liabilities for telecom operators.

The sector's domestic-revenue-heavy business model also leaves telecom companies exposed to dollar-denominated import costs, including equipment. This puts pressure on net profit margins compared with export-driven sectors such as IT and Pharma, SBI Securities said in a note.

Another key concern is the timing of tariff hikes. Indian telecom operators have been expected to raise tariffs to improve ARPU and returns, but the timing of the next major hike remains uncertain. Operators have already made substantial investments in 4G and 5G networks, while tariffs remain relatively low. Any delay in tariff hikes would also push back the improvement in ARPU and cash flows.

More pain ahead for Reliance Jio, Airtel, Vodafone Idea?

Telecom sector revenue growth could slow to single digits this fiscal year if tariff hikes do not come through, according to market trackers. Industry revenues grew around 10% in FY26, down from 13% in FY25.

Telecom operators are potentially holding off on raising mobile tariffs amid prevailing inflationary pressures on household budgets, worsened by the Iran war. Analysts expect revenue growth to remain subdued over the next few quarters if tariff hikes are delayed further. They currently expect a 15% rise in mobile tariffs by the fiscal second quarter, translating into a Rs 50 increase for the 28-day pack with 1.5GB of daily data.

Such a hike would lift sector revenue growth to 11% year-on-year to Rs 3 lakh crore in FY27, brokerage Motilal Oswal said in a report. "Historically, we have observed that industry leaders' wireless revenue growth moderating to single digits YoY has been a precursor to the next round of tariff hikes," Motilal Oswal said.

Axis Direct supports the view. It said the Indian telecom industry is seeing strong data consumption, with demand for data continuing to accelerate. A future tariff hike would help ARPU increase meaningfully, contributing to improved operating margins and stronger free cash flow generation.

The next phase of growth for telecom players is expected to come from ARPU expansion, premiumisation and monetisation of the large 4G/5G subscriber base rather than subscriber additions.

With 5G rollout moving towards the monetisation phase, capex intensity should gradually moderate, supporting stronger free cash flow and balance-sheet improvement. Meanwhile, home broadband, FWA, enterprise connectivity, cloud, data centres and digital services are emerging as additional growth engines beyond traditional mobility.

Axis said Airtel and Jio are well positioned to benefit from the favourable industry structure, given their strong subscriber franchises and balance sheets. Vodafone Idea's recovery remains a key monitorable for competitive intensity and industry pricing discipline, it added.

Who will win the battle?

Earlier this month, global brokerage Jefferies initiated coverage on Vodafone Idea with a 'Buy' rating and a price target of Rs 20 per share. The target implies a 29% upside from current market levels.

Jefferies sees Vodafone Idea as a high-beta turnaround opportunity, with subscriber stabilisation, operating leverage and tariff-led earnings growth expected to support the recovery.

The brokerage forecasts an 11% revenue CAGR over FY26-29 as subscriber trends stabilise, while cash EBITDA is expected to grow at a 25% CAGR over FY26-31.

Jefferies also considers Vodafone Idea the most leveraged beneficiary of tariff hikes. According to the brokerage, every 10% increase in tariffs could potentially translate into around 34% upside in equity value.

Its Rs 20 price target is based on a valuation of 23x EV/Cash EBITDA, in line with Vodafone Idea's five-year average. However, Jefferies' investment thesis depends on future tariff hikes and Vodafone Idea securing additional funding, including a required Rs 16,000 crore equity raise by FY30.

The brokerage expects Vodafone Idea's cash outflows to rise sharply to more than Rs 40,000 crore annually during FY29-34, resulting in a temporary cashflow mismatch over the period.

While the company's planned Rs 25,000 crore debt raise is expected to be sufficient to tide over FY27-29, Jefferies estimates that Vodafone Idea will need a fresh Rs 16,000 crore equity infusion in FY30.

Nomura, meanwhile, forecasts around 14% consolidated EBITDA CAGRs for both Bharti and Reliance Jio over FY26-29F, underpinned by a likely tariff hike of around 15% during 3QFY27F.

It expects a slightly higher 15% EBITDA CAGR for VIL on a lower base amid improving operating metrics. Bharti remains Nomura's top pick among the telecom stocks under its coverage.

The brokerage maintains its Neutral rating on Vodafone Idea, citing a significant valuation premium versus Bharti Airtel at Buy, while noting that its cash flow situation remains stretched.

When will FIIs start buying India again?

Foreign investors are unlikely to return to Indian equities in large numbers even after the artificial intelligence trade peaks, with a sustained revival in foreign inflows depending on India's ability to build globally competitive industries in areas such as semiconductors, batteries and energy storage, Bernstein said in a report.

Bernstein said high valuations are also making foreign capital more difficult to attract, with its analysis showing that rising relative valuations have coincided with weaker FII flows in recent years.

"We do not believe FIIs will return in large numbers even after the AI trade peaks," the brokerage said, adding that a structural revival would require India to create "new engines of competitiveness, innovation, and global relevance."

Bernstein said foreign investors are not merely waiting for current uncertainties to settle before returning to India. Sustained FII participation, it said, will depend on India creating a new generation of globally competitive companies.

Disclaimer: This article has been written by Veer Sharma, who is not a SEBI-registered Research Analyst or an Investment Adviser. Veer Sharma and his ‘relative(s)’ (as defined under Section 2(77) of the Companies Act, 2013) do not hold any financial interest in the companies mentioned in this article as of the date of publication. The views/recommendations mentioned in this article, wherever applicable, are those of the respective SEBI-registered Research Analyst/brokerage and have been reproduced/reported with due attribution. They should not be construed as the views or recommendations of The Economic Times Digital or the journalist. Readers are advised to consider the original research report and make their investment decisions based on their own assessment. Brokerage disclaimers here.