Jefferies sees large caps benefiting from FPI revival; Reliance, HDFC Bank, Axis Bank among potential beneficiaries

A potential revival in foreign portfolio investor (FPI) flows into Indian equities could benefit largecap stocks more directly, given their higher liquidity and FPI ownership, according to a report by Jefferies.

The brokerage has identified Reliance Industries, HDFC Bank, Axis Bank, Kotak Mahindra Bank, Max Healthcare, JSW Energy, UltraTech Cement, IndiGo, Varun Beverages, Indian Hotels Company (IHCL), DLF and Sona BLW as potential beneficiaries of a reversal in foreign investor flows.

"Given higher liquidity and FPI ownership, we see large caps as the more direct beneficiary of revival in FPI flows. We highlight Reliance, HDFC Bank, Axis, Kotak, Max Health, JSW Energy, Ultratech, Indigo, Varun, IHCL, DLF, Sona BLW as plays on FPI reversal," said Abhinav Sinha, Priyank Shah and Aditi Singla of Jefferies.


According to the brokerage, FPI flows into Indian equities have shown signs of reversal after a prolonged period of selling. Foreign investors have recorded net inflows of $8.2 billion since mid-October, of which $5.8 billion came in during just six trading sessions in November 2026.

FPIs had remained persistent sellers of Indian equities since September 2024, recording cumulative net outflows of $61 billion. The first 10 months of calendar year 2026 alone saw outflows of $31 billion, the report said.

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Jefferies identified several factors that could sustain the revival in foreign investor flows, including a potential reversal or broadening of the concentrated artificial intelligence (AI) trade, possible equity tax relief, resilient domestic macroeconomic conditions, relatively reasonable large-cap valuations and light foreign investor positioning.

The brokerage noted that a moderation in the concentrated AI trade could encourage global investors to redirect allocations towards India. It also pointed to rising hyperscaler bond spreads, indicating increasing questions around AI capital expenditure. MSCI Korea has already declined around 40% from its June 2026 peak, the report noted.

Geopolitical developments remain unpredictable, but any easing of tensions that brings down crude oil prices could also support foreign flows into India. Crude prices have declined around 20% from their October 2026 peak. As a major oil-importing economy, lower crude prices could benefit India and support the rupee, Jefferies said.

The brokerage also flagged potential equity tax relief as another factor that could improve India's relative attractiveness to foreign investors.

On the domestic front, macroeconomic indicators remain supportive, with healthy festive-season automobile sales, robust power demand and credit growth. These factors have contributed to a 1.5-percentage-point upgrade in MSCI India's earnings estimates since the end of June 2026, according to the report.

Where have FPI outflows been the largest?

In its first screen, Jefferies examined sectors and stocks that have witnessed the largest FPI outflows since September 2024.

Financials recorded the highest sectoral outflows at $17 billion, followed by Consumer Staples at around $11 billion. Energy, automobiles and IT each witnessed outflows of approximately $9 billion.

At the stock level, Reliance Industries and HDFC Bank recorded the largest estimated FPI outflows between September 2024 and September 2026, at around $8 billion each. ICICI Bank and Axis Bank followed with outflows of $5 billion each, while Mahindra & Mahindra and Kotak Mahindra Bank saw outflows of approximately $3 billion each.

Where has FPI ownership declined the most?

In its second screen, the brokerage examined BSE 500 companies that have witnessed the sharpest decline in foreign investor ownership.

FPI ownership in BSE 500 stocks has fallen to a 10-year low of 17.3%, compared with 19.6% in September 2024, the report said.

Jefferies screened BSE 500 companies with a market capitalisation of more than $5 billion to identify stocks that recorded the largest decline in FPI ownership between September 2024 and September 2026.

Max Healthcare recorded the sharpest decline, with FPI ownership falling 17 percentage points. Axis Bank followed with a decline of 13 percentage points.

Paytm and 360 ONE WAM witnessed declines of 12 percentage points each, while Trent and Godrej Consumer Products saw their FPI ownership fall by 11 percentage points each.

Where has relative FPI positioning fallen the most?

The third screen focused on changes in foreign investors' relative positioning in individual stocks compared with the MSCI India index between September 2024 and September 2026.

HDFC Bank witnessed the largest reduction, with its relative overweight positioning declining 2.4 percentage points to 1.0 percentage point.

Axis Bank's relative positioning fell 0.4 percentage point, while Kotak Mahindra Bank, Reliance Industries, JSW Energy and BHEL each saw a decline of around 0.3 percentage point.

At the sector level, relative FPI positioning declined the most in Industrials and Financials, falling 1.3 percentage points and 1 percentage point, respectively.

Foreign investor positioning remains light

Despite the recent improvement in flows, overall foreign investor positioning in Indian equities remains relatively light, according to Jefferies.

The brokerage's analysis of 70 large active emerging-market funds, with combined assets under management of $370 billion, showed that India had an overweight positioning of just 0.1 percentage point as of September 2026.

This was significantly below the 10-year average overweight positioning of 2.2 percentage points. As many as 61% of the funds were underweight on India.

Jefferies also noted that large-cap valuations have turned relatively reasonable, with the Nifty 100 trading at 18.6 times its one-year forward earnings, around 5% below its 10-year average.

Given the higher liquidity and FPI ownership of large-cap companies, the brokerage sees the segment as the more direct beneficiary of a potential revival in foreign investor flows.

Disclosure: This article has been written by Kumar Gaurav, who is not a Sebi-registered Research Analyst or an Investment Adviser. Gaurav and their ‘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