Foreign institutional investors (FIIs) have maintained a consistent pattern of divesting from Indian equities, with April 2026 marking another month of substantial outflows. This trend, extending from a record-breaking sell-off in March 2026, is largely attributed to global capital's increasing gravitation towards artificial intelligence (AI)-linked investment themes in other Asian markets, coupled with domestic macroeconomic pressures.
Significant Outflows and Shifting Ownership
According to a report by JM Financial, FIIs were net sellers to the tune of Rs 68,870 crore ($7.3 billion) in April 2026. This follows an even larger outflow in March 2026, which recorded the highest monthly net FII outflow in absolute terms. While the secondary market bore the brunt of this selling, experiencing net FII outflows of Rs 71,200 crore in April 2026, the primary market surprisingly registered net inflows of Rs 2,300 crore.
The long-term view reveals a stark shift in ownership. FII ownership as a percentage of total Indian equities has plummeted from 19.9 percent in April 2016 to 14.7 percent in April 2026, reaching its lowest point since June 2012. Conversely, domestic institutional investor (DII) ownership has steadily climbed, reaching 18.9 percent by March 2026.
Primary Market Exception: A Glimmer of Inflows
Despite the widespread selling in the secondary market, FIIs have shown sustained interest in India's primary market over the past year. Over the last 12 months, Indian primary markets recorded FII net inflows of Rs 72,200 crore ($8.2 billion), contrasting sharply with the Rs 3.41 lakh crore ($37.3 billion) in net outflows from secondary markets during the same period.
Sectors Most Affected by Foreign Selling
The banking and financial services (BFSI) sector experienced the most significant foreign outflows. JM Financial highlighted that BFSI saw outflows of $3,280 million. Other sectors impacted include Services ($827 million), Pharma ($737 million), Oil & Gas ($711 million), Auto ($583 million), Telecom ($467 million), IT Services ($445 million), FMCG ($343 million), and Realty ($227 million).
Why Are FIIs Selling India?
Market experts point to a dual combination of macroeconomic concerns within India and the absence of a robust AI-led investment theme as primary drivers for the weakened foreign investor sentiment.
"FIIs have been in a selling mode over the past one year, and the selling has been accentuated in the last six months. Factors such as India's heavy dependence on crude oil imports, pressure on the rupee, and the absence of a strong AI/technology theme have weighed on sentiment," said Kranthi Bathini, Equity Strategist at WealthMills Securities. "Long-only FIIs are also staying on the sidelines at this point until there is greater clarity on India's growth prospects."
VK Vijayakumar, Chief Investment Strategist at Geojit Investments, emphasized the global shift towards AI-driven markets. "A significant trend in FII flows this year is that Japan, South Korea and Taiwan are attracting significant inflows, while India and some other emerging markets, which are facing headwinds from the energy crisis and currency depreciation, are facing outflows," he noted.
Companies like Samsung and SK Hynix in South Korea, and TSMC in Taiwan, are attracting a substantial share of these inflows due to their strong performance in the AI sector. As long as the AI trade continues its current trajectory, the trend of FII outflows from India is likely to persist, although concerns about overvaluation in AI stocks are also emerging.