- Foreign institutional investors sold Indian equities worth Rs 35,861 crore in September.
- Banking and financials faced Rs 13,147 crore selloff, 37% of total foreign outflows.
- FIIs also withdrew Rs 6,854 crore from oil and Rs 6,212 crore from auto sectors.
The lure of Indian equities again started diminishing for foreign insititutional investors in September, after a two-month reprieve, with the month recording a cumulative selloff of Rs 35,861 crore, per the National Securities Depositories Ltd. (NSDL) data.
What stood out, however, was that one sector—banking and financials—accounted for Rs 13,147 crore, or a staggering 37% of the monthly selloff.
The bleeding only accelerated as the month wore on. After shedding Rs 6,204 crore in the first fortnight, foreign investors dumped another Rs 6,943 crore in financial stocks between September 16 and 30.
Speaking to NDTV Profit, Kranthi Bathini said that this targeted pain is a direct consequence of the sector's historical popularity among global funds.
"Banking and financials are the absolute favorites of foreign investors. Because FIIs traditionally park their heaviest investments in this space when entering the Indian market, the sector inevitably suffers the most severe damage when those same investors decide to pull their capital out," he explained.
While banks took the hardest hit, the exodus was widespread across the broader market.
FIIs systematically trimmed their exposure across multiple industries, withdrawing Rs 6,854 crore from oil, gas, and consumable fuels.
The auto sector saw Rs 6,212 crore in outflows, followed by telecom at Rs 3,414 crore. Metals and mining lost Rs 3,003 crore, and the FMCG sector closely trailed with Rs 3,001 crore in offloaded shares.
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September Wipes Out July-August Hope
The September rout was a bitter pill for the markets, effectively crushing the brief optimism that had blossomed over the summer.
Following heavy liquidations between March and June, foreign investors had appeared to be making a robust return. They pumped Rs 20,202 crore into Indian equities in July and followed it up with a Rs 29,628 crore buying spree in August.
That momentum was sharply reversed in September, mirroring a painful pattern that has plagued the markets throughout the year.
Financial services have consistently led sectoral outflows during every major FII selloff month this year, topping the charts in January, March, April, May, and now September.
The sole exception to this trend was June. During that month, FIIs actually purchased Rs 3,371 crore in financial shares despite broader market selling.
The cumulative damage for the calendar year paints a stark picture of foreign capital flight.
So far in CY26, FIIs have liquidated Rs 2.60 lakh crore in total Indian equities. Financial services stocks account for Rs 1.15 lakh crore of that figure, representing nearly 44% of the entire foreign equity exodus.
Notably, the FII exodus seems to worsen in October, as FIIs offloaded Rs 31,282-crore stocks within the first seven days of the month. The selloff is being driven by the surging crude oil prices and rising US Treasury yields, which strengthen the Dollar Index and diminish the appeal of rupee-based returns which FIIs can lock through investment in Indian equities.
Rupee is expected to remain volatile and vulnerable, unless global macros incrementally stabilise, Lakshmi Iyer, Group President - Investments and CEO at Bajaj Alternate Investment Management, while speaking to NDTV Profit.
A crucial structural headwind for the currency is the rapid narrowing of the interest rate spread between New Delhi and Washington. In January 2023, the India-US sovereign yield differential stood at around 400 basis points. Presently, that spread has halved to roughly 200 basis points. After adjusting for currency volatility, dollar yields remain exceptionally competitive, capping foreign portfolio inflows, she explained.
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