Foreign portfolio investors (FPIs) sharply reduced their exposure to financial stocks in the second half of May, with the sector emerging as the biggest laggard in terms of assets under custody (AUC), according to data compiled from NSDL.
Between May 15 and May 31, AUC in financial services declined by Rs 11,441 crore, the steepest drop across all sectors, highlighting sustained selling pressure. This came even as overall FPI AUC rose by Rs 42,744 crore during the period, indicating that flows into other segments more than offset the outflows from financials.
In contrast, sectors such as capital goods saw a growth of Rs 24,140 crore, information technology recorded a growth of Rs 15,662 crore, and metals & mining rose Rs 10,703 crore of inflows.
The underperformance of financials appears to be rooted in weak earnings momentum. The sector reported a sharp deterioration in profitability in the March quarter of FY26, with aggregate net profit declining nearly 20 per cent year-on-year across 108 companies tracked by Bloomberg. Margin compression, slower credit growth in select segments, and rising cost pressures are seen as key factors weighing on earnings, likely prompting FPIs to trim exposure despite the sector’s significant weight in benchmark indices.
Other defensives, such as FMCG, saw de-growth of Rs 10,963 crore and healthcare saw a decrease of Rs 6,676 crore, also saw withdrawals, though not to the same extent as financials.
Notably, Foreign institutional investors (FIIs) have withdrawn nearly Rs 3.8 lakh crore from Indian equities over the past year, including Rs 3.28 lakh crore in 2026 so far. In contrast, domestic institutional investors (DIIs) have pumped in Rs 5.75 lakh crore over the last 12 months and Rs 4.18 lakh crore on a year-to-date basis, more than offsetting foreign outflows.
(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.)
