Foreign investors turned their heaviest fire on banking and financial stocks in September, selling Rs 13,147 crore worth of financial services shares as renewed outflows hit Indian equities and dragged the Nifty into its longest weekly losing streak in 25 years.
Sectoral data for September shows FIIs sold Rs 35,861 crore across Indian equities during the month. Financial services alone accounted for more than a third of that outflow, making it the most-sold sector by a wide margin.
The pressure intensified in the second half of the month, with FIIs selling Rs 6,943 crore of financial services stocks between September 16 and 30, after dumping equities worth Rs 6,204 crore in the first fortnight.
The selling was not confined to banks. Foreign investors also cut exposure to oil, gas and consumable fuels by Rs 6,854 crore, automobiles by Rs 6,212 crore, telecom by Rs 3,414 crore, metals and mining by Rs 3,003 crore and FMCG by Rs 3,001 crore in September. But financials remained the clear pain point.
Banks bore the brunt of FII selloff
The pattern has repeated through most major FII selloff months this year. Financial services saw the highest sectoral outflow in January, March, April, May and September. June was the exception, when FIIs sold Indian equities overall but bought financial services shares worth Rs 3,371 crore. For CY26 so far, FIIs have sold Rs 1.15 lakh crore worth of financial services stocks, nearly 44% of their total equity outflow of Rs 2.60 lakh crore.
September wipes out July-August hope
July and August had briefly raised hopes that foreign investors were returning to Indian equities. FIIs bought Rs 20,202 crore in July and Rs 29,628 crore in August, after heavy selling between March and June. September reversed that trend sharply.
Pabitro Mukherjee, deputy vice president-research at Bajaj Broking, said benchmark indices continued to face selling pressure amid a challenging global backdrop, with elevated US bond yields, firm Brent crude prices and sustained FII outflows weighing on sentiment.
Why banks are being sold first
Financials are usually the largest sectoral allocation for foreign investors in India. That makes them the first source of liquidity when FIIs want to reduce India exposure quickly. Banks are also more exposed to macro variables that foreign investors are watching closely: bond yields, currency, credit growth, interest-rate direction and asset quality.
VK Vijayakumar of Geojit Investments had earlier said elevated crude prices and high US bond yields are negatives for Indian equities and FPI flows. Higher crude can worsen India’s import bill, increase inflation pressure and weaken the rupee, while high US yields make dollar assets more attractive than emerging-market equities.
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If the rupee remains weak and US yields stay elevated, foreign investors may prefer to keep reducing exposure to rate-sensitive and domestically focused sectors.
Anish Tawakley, chief investment officer at DSP Mutual Fund, has cautioned that investors trying to time Indian equities by tracking foreign fund flows are effectively betting on mood swings. He expects earnings, rather than liquidity, to drive portfolio decisions over the next 12-18 months and remains positive on banks, especially large caps.
Disclosure: This article has been written by Podishetti Akash, who is not a SEBI-registered Research Analyst or an Investment Adviser. Podishetti Akash 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 disclosures here.
