Foreign investors took a step back from Indian markets in the second half of 2024, spooked by weak earnings, high valuations and global conflicts. Rising US yields also pulled money out of emerging markets. In the months that followed, foreign institutional investors (FIIs) became increasingly selective in their exposure to Indian markets.
That caution has only grown in 2025 with Donald Trump's return to the White House. This is despite falling inflation, the Reserve Bank of India's repo rate cuts and signs of economic recovery. Investors have to weigh these positives against Trump’s unpredictable moves, including aggressive tariffs. His threats, followed by walkbacks of the same threats, have kept global markets nervous and investors on their toes.
In India, FII flows have turned sharply sector-specific. Since July 2024, FIIs have sold equities worth Rs 82,121 crore overall. But they have selectively increased their bets in sectors that benefit from domestic demand, policy visibility, or structural reforms, while exiting those exposed to global risks.
VK Vijayakumar, Chief Investment Strategist at Geojit Financial Services, remarked, “Whenever valuations go beyond a particular level, FIIs turn sellers, and they sell aggressively. In March and April, the markets declined and valuations became reasonably attractive. So FIIs started buying in April, May, and June.”
This week’s Chart of the Week looks at how FIIs are shifting their bets across sectors. They are now making domestic-focused bets in telecom, financial services and overall services, while cautiously returning to power and oil & gas. Meanwhile, they continue to exit the FMCG, healthcare, and IT sectors. Amid global uncertainty, the tilt toward domestic growth is clear.
From global to local: FIIs pivot to the domestic market
FIIs have turned their attention to the telecom sector since the start of 2025, investing Rs 26,919 crore, compared to a Rs 270 crore divestment in the second half of 2024.
Favourable conditions in the sector, including rate hikes by telecom companies, strong 5G rollout, and a government push, have attracted investors. The telecom sector generates the majority of its revenue from the domestic market, making it less exposed to global uncertainties, like the impending import tariffs being proposed by President Trump.
After a prolonged period of increased competition and low tariffs, telecom service providers introduced rate hikes in 2024, which helped improve the average revenue per user (ARPU).
Reports also suggest another 10-12% hike later in 2025, showing further potential for growth in ARPU. Under the National Telecom Policy 2025, the Indian government aims to double telecom exports and achieve 100% 4G and 90% 5G coverage by 2030. This is expected to attract investments of up to Rs 1.5 lakh crore in telecom infrastructure.
Financial services is another domestic sector benefiting from FII interest, with FII investments turning bullish in 2025. After divesting Rs 31,940 in January and February, FIIs invested Rs 46,477 crore in the sector during March-July.
Investor confidence in domestic lending growth and consumption-linked banking activity drove these investments. The Reserve Bank of India (RBI) has cut the repo rate three times in 2025 so far, bringing it down to 5.5%, prompting FIIs to favour Indian equities over debt instruments.
Services is another sector that derives the majority of its revenue from the domestic market. FIIs have turned positive on this sector in 2025, investing Rs 10,027 crore so far compared to a net sales of Rs 447 crore in the second half of 2024.
Oil & gas and healthcare see mixed FII sentiment due to global uncertainties
After an eight-month selling streak in the oil & gas sector, FIIs turned net buyers in May-July 2025. FIIs have made a net investment of Rs 836 crore in the sector so far in 2025.
Global oil prices fluctuated in 2024 due to geopolitical tensions and supply-demand imbalances. US sanctions on Russian crude oil and domestic policy adjustments, including changes in subsidies and taxation, added to uncertainty. However, Brent crude oil prices hovering around $70 per barrel, and reports suggesting a Rs 35,000 crore compensation from the government to oil marketing companies (OMCs) have led FIIs to resume investments in the sector in 2025.
FII sentiment on the healthcare sector shifted to bearish in 2025. FIIs infused Rs 21,716 crore during the second half of 2024, compared to Rs 10,247 crore in divestments so far in 2025. The sell-off started after President Donald Trump threatened the Indian healthcare companies with import tariffs earlier in the year.
Recently, President Trump threatened to impose a 200% import tariff on Indian pharmaceutical companies on July 9, after giving them 12-18 months to set up manufacturing facilities in the US. The Indian healthcare industry generated $9 billion (~ Rs 76,831 crore) in sales from the US in FY25.
Amit Kumar, Research Analyst at HDFC Institutional Equities, said, “Indian healthcare peers, already operating on thin margins in the US generics, may struggle to absorb costs without passing them on to US consumers or insurers and face heightened risks of margin compression.”
FIIs eye India again amid cooling inflation, but tech still out of favour
Foreign investors often view the auto, consumer services, and IT sectors as a barometer of India’s economic prospects. These segments are closely tied to both domestic consumption and global trends, so they quickly reflect shifts in foreign investment sentiment.
FIIs remained net sellers in the auto and consumer services sectors from September 2024. Their pullback reflected concerns about high inflation and rising interest rates, which typically reduce demand for non-essential goods like vehicles and services.
That trend now appears to be reversing. FIIs have started returning to these sectors due to easing inflation and recent rate cuts by the RBI, which could boost consumer spending.
Tech stocks, however, continue to face pressure. FIIs have been selling consistently amid weak global demand and tighter tech budgets in key markets like the US and Europe.
Investors also shifted capital to Chinese stocks during September and October 2024, which had shown signs of recovery, supported by government stimulus and more attractive valuations. An IT sector analyst said, “If the revenue and earnings growth are in single digits, it is difficult to justify higher valuations in the IT sector. This is the reason for higher outflows by FIIs from the sector.”
Are FIIs shifting defensive bets from FMCG to power?
Foreign investors have continued to reduce their exposure to the FMCG and power sectors over the last two quarters of FY25, despite both being traditionally viewed as defensive plays during uncertain times. This suggests that FIIs are now focusing more on growth opportunities than on sticking solely to safe and stable sectors.
FII sentiment toward the power sector remained weak until March 2025 due to the poor financial health of power distribution companies, which often delay payments because of persistent losses. But now, there's a shift in mood.
FIIs turned buyers in July 2025, encouraged by signs of quicker policy action and faster execution of large projects. The ongoing rollout of smart meters has also lifted sentiment, as it promises better billing efficiency and improved cash flow for discoms (distribution companies). Analysts believe these changes could bring more predictability to the sector, making it more appealing for long-term investors.
High food inflation continues to weigh on the FMCG sector during Q3 and Q4 of FY24, particularly by eroding rural demand, which accounts for nearly 35-40% of total sales for many companies. At the same time, rising input costs have squeezed profit margins, as firms have struggled to pass on the burden to consumers fully. Commenting on the recent trends, Saugata Gupta, MD & CEO of Marico, said, “During the quarter, consumer sentiment stayed mostly stable, with some improvement in rural demand and mixed trends in urban areas. However, margins remained under pressure from input costs. Cooling inflation offers some hope for better consumption ahead.”
