FIIs Hold $717 Billion Worth of Indian Stocks but Trim Exposure in 56% of Nifty 500 Companies: Where Are They Investing?

Mumbai: Foreign institutional investors (FIIs) continued to maintain substantial exposure to Indian equities in September 2026, holding stocks worth approximately $717 billion across the Nifty 500 universe. However, they reduced their shareholding in 56% of the index’s constituent companies, highlighting a shift towards selective investing amid changing market conditions.

According to a strategy report by Motilal Oswal Financial Services, foreign investors have been reallocating their portfolios across sectors, reducing exposure to several traditional market leaders while increasing their allocation to selected growth-oriented industries.

The trend reflects a broader change in India’s equity ownership structure, with domestic institutional investors (DIIs) steadily increasing their market presence even as foreign investors become more selective.

Private Banks Remain the Biggest Investment Destination

Despite trimming exposure across numerous companies, financial services continue to dominate foreign institutional portfolios.

Private banks accounted for approximately $144 billion of FII holdings in the Nifty 500 as of September 2026, making them the largest sectoral allocation. Banking and financial services together represented 33.1% of foreign investors’ Nifty 500 allocation, although this share declined by 1.3 percentage points quarter-on-quarter.

The five largest individual holdings—HDFC Bank, ICICI Bank, Reliance Industries, Bharti Airtel and Axis Bank—accounted for approximately 25% of total FII holdings, underlining the importance of large, established companies in foreign portfolios.

Healthcare and New-Age Technology Attract Greater Interest

While foreign investors reduced exposure in several sectors, healthcare and internet-based businesses gained a larger share of their portfolios.

Healthcare accounted for 7.4% of FII allocations in the Nifty 500, increasing by 0.6 percentage points quarter-on-quarter and 1.3 percentage points year-on-year.

Foreign investors also increased their relative allocation to internet and new-age technology companies, alongside selected technology, metals, real estate and automobile stocks.

The shift suggests that foreign investors are selectively repositioning their portfolios rather than withdrawing completely from Indian equities. However, a higher sector allocation does not necessarily mean that every company within that sector has attracted fresh investment.

Technology Stocks Face Mixed Sentiment

The technology sector continues to experience contrasting investment trends.

Although foreign investors increased their technology allocation sequentially in September, its overall share remained at 5.7% of FII holdings in the Nifty 500—down 1.6 percentage points year-on-year.

This reflects the broader challenges facing parts of India’s technology industry, including uncertainty surrounding global demand, earnings growth and the impact of artificial intelligence on traditional IT services.

The latest ownership data indicate that foreign investors are becoming more selective about their exposure rather than uniformly increasing or reducing investments across all technology companies.

Domestic Investors Strengthen Their Market Position

The decline in foreign ownership has coincided with a steady rise in domestic institutional investment.

According to Motilal Oswal’s September-quarter analysis, domestic institutional investors held a record 21.3% of Nifty 500 companies, while FII ownership fell to 16.8%.

Domestic institutions increased their holdings in 69% of Nifty 500 companies over the year, demonstrating the breadth of domestic buying.

During the second quarter of FY27, DIIs invested approximately $17.7 billion in Indian equities, compared with around $700 million added by FIIs, according to the report.

Regular investments through mutual funds and systematic investment plans have helped domestic institutions absorb selling pressure from overseas investors.

Why Are FIIs Becoming More Selective?

Several factors are influencing foreign investment decisions in Indian equities.

• Global economic uncertainty: Changes in global interest rates, bond yields and geopolitical conditions can influence the allocation of international capital.
• Valuation considerations: Foreign investors may reduce exposure to companies where valuations appear less attractive relative to expected earnings growth.
• Sector-specific opportunities: Healthcare, new-age technology and selected industrial sectors are gaining relative importance in foreign portfolios.
• Domestic capital flows: Strong investment by Indian mutual funds and other domestic institutions is changing the ownership structure of listed companies.
• Primary-market investments: Despite selling shares in the secondary market, FIIs have continued to participate in primary issuances, indicating interest in selected new investment opportunities.

Outlook: Selective Foreign Investment Could Continue

The latest ownership figures highlight a changing landscape for India’s stock market. Foreign investors continue to hold a substantial $717 billion in Indian equities, but their reduced exposure across 56% of Nifty 500 companies demonstrates a more selective approach.

Private banks remain their largest investment destination, while healthcare, internet and new-age technology, and selected industrial sectors are attracting a greater relative allocation.

Meanwhile, domestic institutional investors are steadily expanding their ownership, providing an important source of liquidity during periods of foreign selling.

Going forward, foreign investment flows are likely to depend on corporate earnings, market valuations, global interest rates and the relative attractiveness of Indian equities compared with other markets.