FIIs Turn Net Buyers of India Equities After $29 Billion Selloff

FIIs Return to Dalal Street After Record Outflows

Foreign institutional investors (FIIs) have pivoted back to Indian equities in July 2026, marking a notable shift after what is described as a record $29 billion net selloff from domestic markets. The reversal is being closely watched by market participants hoping the renewed buying interest signals a durable trend rather than a brief respite.

What Drove the Historic Selloff?

Christopher Wood, global head of equity strategy at Jefferies, has offered one of the clearest explanations for why foreign money fled Indian shores with such force. According to Wood, the exodus was not primarily a rejection of India’s growth story but rather a consequence of the artificial intelligence-driven investment frenzy that gripped semiconductor-heavy markets in South Korea and Taiwan. As chipmakers and memory manufacturers in those markets soared on AI optimism, global fund managers rebalanced portfolios, pulling capital from India to chase outsized returns elsewhere.

This interpretation aligns with broader trends visible in global markets, where leveraged exchange-traded funds linked to AI chipmakers in South Korea saw assets surge dramatically, and where the AI rally in semiconductor stocks commanded significant fund flows throughout 2025 and into early 2026.

The Conditions for Sustained Inflows

While the return of FII buying is encouraging for Indian bulls, Wood has tempered expectations by laying out two conditions that would need to be met for inflows to become genuinely sustained. First, the global AI trade would need to cool — a scenario that appears to be inching closer given the sharp semiconductor selloff seen in U.S. markets overnight and the resulting tumble in Asian tech stocks on Friday. Second, Indian equity valuations would need to become more attractive on a relative basis, something that market corrections or earnings upgrades could facilitate.

The timing of the FII return is significant. Indian benchmark indices rallied sharply on 17 July, with the Sensex jumping over 850 points intraday, powered by heavyweights in banking and energy. This broad-based advance suggests domestic institutional investors and retail participants have been quick to welcome the foreign return.

June Quarter Data Adds Nuance

It is worth noting that even as FIIs have turned net buyers at an aggregate level in July, data from the June quarter reveals that foreign investors trimmed stakes in hundreds of smallcap stocks during that period, with some shares declining as much as 50% over the calendar year. This suggests the FII recovery has so far been concentrated in larger, more liquid names rather than reflecting a broad-based return to riskier segments of the market.

India’s Relative Appeal

Analysts broadly agree that India’s macroeconomic fundamentals — including improving corporate earnings visibility, a relatively stable currency, and ongoing infrastructure spending — provide a supportive backdrop for foreign capital. However, whether the current buying phase matures into a multi-quarter inflow cycle will depend heavily on global risk sentiment and the trajectory of the AI investment theme worldwide.

For information only and not investment advice. Summarised from the cited sources; figures may be delayed. Do your own research before investing.