If 2024 was the year foreign investors cheered India’s rise, 2025 has been the year they reviewed their portfolios and rebalanced them with far more caution. Think of it like reorganising a crowded bookshelf: moving some books out, bringing a few important ones forward, and adding only those that deserve attention.

The headline number stands out: FIIs pulled out more than Rs 2.8 lakh crore in 2025. This wasn’t panic selling. It was a considered reset.

A weaker rupee, stretched valuations, and higher global bond yields kept the overall flows negative. Under the surface, though, FIIs became selective. They shifted money toward banks, rural-linked businesses, and niche lenders where growth visibility looked clearer.  

Across sectors, one pattern dominates, where investors reduced exposure to expensive urban consumption names and moved toward companies that still had valuation room and better long-term prospects.

VK Vijayakumar, Chief Investment Strategist at Geojit Financial Services, noted, “FIIs are selling now primarily because of the sharp depreciation of the rupee this year. It is normal for them to take money out during currency volatility. However, this sell-off has been completely eclipsed by sustained buying by DIIs.”

In this edition of Chart of the Week, we track the reshuffle inside FII portfolios over the last year. The data shows renewed interest in banks and rural-linked businesses, alongside steady exits from companies facing softer demand or uneven earnings visibility.

Banks regain trust as rules turn clearer

One of the biggest shifts of 2025 was the return of FIIs to banks they had long avoided. YES Bank and IDFC First Bank saw some of the sharpest increases in foreign ownership, signalling a change in sentiment.

A turning point came when SBI sold part of its YES Bank stake to Sumitomo Mitsui Banking Corp. SMBC’s investment acted as a clear governance signal, showing confidence in the bank’s cleaner balance sheet, stronger oversight, and progress in moving past its legacy issues.

Regulatory tailwinds have helped. The RBI’s revised rules that could allow banks to fund mergers and acquisitions, along with discussions on raising foreign investment limits in select private banks, improved long-term visibility. Together, these steps created an environment that looked stable and transparent, making FIIs more comfortable increasing their exposure.

FIIs also increased their holding in Authum Investment, reflecting interest in lenders that rely on secured loans rather than riskier unsecured credit. Authum has reduced its legacy exposures and strengthened asset quality, matching investor preference for cleaner books and lower-risk business models in 2025.

FIIs position for early rural recovery

Another shift was toward India’s rural and agri-linked economy. After two years of patchy monsoons and elevated food prices, early signs of stability returned. Inflation cooled, and government policies leaned more toward income support rather than short-term subsidies.

These improvements tend to show up quickly in agri-linked sectors such as fertilizers, agri-inputs, and edible oil. As indicators strengthened, FIIs added exposure to companies tied directly to rural recovery.

One example was AWL Agri Business (formerly Adani Wilmar), where foreign interest picked up after a major restructuring. With the Adani Group stepping out as promoter and Wilmar International becoming the sole promoter, governance became simpler, and simpler structures usually reduce uncertainty and increase comfort for FIIs.

A similar pattern played out in Coromandel International. As one of the largest fertilizer and crop protection companies, its sales volumes and demand cycles closely track rural spending trends. FIIs adding to their stakes signalled confidence that rural demand had bottomed out and was in an early recovery phase.

Food-tech divergence: Profit-taking vs pre-profit positioning

The food-tech space saw an interesting split. FIIs trimmed their holding in Eternal (formerly Zomato) by around 14% points over the past year, while increasing their stake in Swiggy by about 5% points in the last quarter. At first glance, it seems odd. Why step away from a profitable market leader and move into a company still working toward profitability?

The key here is valuation and timing.

Eternal had delivered a major turnaround over the past two years. It turned profitable and saw its stock re-rate sharply. Much of the easy upside is now behind it. For FIIs, entering after a big rally leaves limited room for future gains. So, trimming the stake was more about booking profits than doubt about the business.

Swiggy, meanwhile, is at the stage Eternal was two years ago. Losses have narrowed, unit economics have improved, and quick-commerce growth remains strong. FIIs prefer entering just before profitability arrives, a phase historically associated with steep valuation upgrades—making Swiggy a timely bet.

FIIs are backing fast-growing, affordable lenders

FIIs were very selective in the housing finance segment. They added to Home First Finance and Aptus Value Housing but cut positions in PNB Housing Finance, Sammaan Capital, and Aavas Financiers.

Home First and Aptus continued to benefit due to steady demand in affordable housing and strong traction in smaller towns. Their focused operating models also kept growth consistent even when trends elsewhere turned uneven.

On the other hand, PNB Housing delivered strong profit numbers but faced stock volatility as competition intensified and funding costs edged up. Aavas and Sammaan saw slower traction in some regions, prompting FIIs to shift capital toward lenders offering more predictable growth in the near term.

Soft demand drives FII selling in key names

FIIs cut holdings through the year in India Cements, Mahanagar Gas, Cyient, and Crompton Greaves Consumer Electricals, a mix of names facing sector-specific pressures or company-level challenges.

In India Cements, a Mauritius-based FII pared its stake in early 2025 after Q3FY25 results showed a wider loss and continued demand softness in key southern markets. Elevated costs kept margins under strain, making a quick turnaround unlikely.

Mahanagar Gas saw selling as the city-gas sector navigated unpredictable input costs and policy-dependent changes in allocation and pricing. Volumes held up, but margin swings made investors cautious.

In mid-cap names like Cyient and Crompton Greaves, FIIs reassessed earlier optimism. Cyient faced normalising growth and patchy order momentum after a strong multi-year run, leading some investors to take profits. Crompton continued to face weak demand in premium appliances, which kept earnings recovery uneven.