Top Stock Picks: Foreign exodus from Indian equities has reached a tipping point, with outflows at a record 14-year low in the first quarter of calendar year 2026. Notably, foreign ownership in the Indian markets has fallen below domestic institutions for the first time in over two decades, noted Goldman Sachs in a recent note.
However, the brokerage firm highlighted that this heavy selling may soon plateau, but a re-entry of foreign investors is still not on the cards.
“The bulk of foreign selling is likely over, after record outflows over the recent months. Various approaches using flows, positioning and ownership trends suggest foreign flows are now close to downside scenarios. After record $22bn outflows ytd, we estimate the downside risk of incremental foreign selling could be limited at about $4-5bn,” the brokerage said.
The note said that FII share fell to 16 per cent, while DII share rose to 17 per cent, based on the calendar year’s first quarter shareholding filings by listed companies. Across market cap, the decline in foreign share was led by large caps, where ownership fell to its 10-year low. Across sectors, the qoq decline was the most pronounced in banks, real estate, and consumer retail & services, while metals, utilities, and industrials saw foreign ownership rise. Among domestic participants, mutual fund ownership rose to fresh highs in 1Q, whereas direct retail participation declined.
However, the report noted that Global active funds are underweight India by 220bps, versus deeper underweight positioning in China at negative 290bps. If funds were to lower India exposure closer to China’s, that would translate to USD 8 billion of selling from funds in Goldman Sachs’s sample.
Why Re-entry Remains on Hold
While Goldman Sachs notes that the heavy FII selling may have reached its peak and is on a downward trend here onwards, it has highlighted three key reasons why a re-entry is delayed.
In the current scenario, the brokerage has picked 12 stocks as Alpha Picks and reiterated a positive view on financials and staples that have low earnings sensitivity to oil shocks and trade at historically low valuations.
(Disclaimer: The above article is meant for informational purposes only, and should not be considered as any investment advice. ET NOW DIGITAL suggests its readers/audience to consult their financial advisors before making any money related decisions.)
