Indian stocks saw biggest-ever one-day foreign investor exodus on Friday as ₹21,105 crore exited

Foreign institutional investors (FIIs) dumped a record ₹21,105 crore worth of Indian equities on Friday, May 29, marking the largest single-day sell figure on record and renewing concerns over foreign money leaving domestic markets. The heavy selling came as the Nifty continued to trade below its five-year average valuation, raising questions over when overseas investors may return to India.

The massive outflow was not entirely driven by routine FII selling, as part of the move was linked to the latest MSCI rebalancing exercise. According to estimates by Nuvama Alternative, the MSCI-related outflow stood at around $1 billion. Even after excluding that component, however, the net selling remained significant.

The MSCI Standard Index rebalance had been widely anticipated, with several heavyweight Indian stocks witnessing a reduction in their index weightage. Among the major names expected to see outflows were Bajaj Finance, which was estimated to face around $204 million in outflows, while TCS, Infosys, Mahindra & Mahindra and Hindustan Unilever were projected to see outflows ranging from about $109 million to nearly $200 million.

Friday’s selloff may have been the biggest in absolute terms, but it was not without precedent. Indian markets have witnessed similar episodes of sharp foreign selling over the past year.

On October 4, shortly after markets peaked on September 27, FIIs sold more than ₹15,000 crore worth of equities. Another selloff of over ₹12,000 crore was recorded on June 5, a day after the Lok Sabha election results. Markets also saw selling exceeding ₹12,000 crore on March 24 amid heightened US-Iran tensions and rising crude oil prices.

Despite the sustained outflows, market valuations have turned relatively more attractive. After making little progress since the September 2024 peak, the Nifty is currently trading at around 18.1 times one-year forward earnings, below its five-year average valuation of 20 times.

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The valuation comfort, along with expectations of policy reforms and easing geopolitical tensions in West Asia, has kept hopes alive for a return of foreign flows.

Arvind Maheshwari of BofA Securities believes the current phase of FII selling is cyclical rather than structural. He expects foreign investors to return to Indian markets over time, supported by reforms, improving global conditions and more reasonable valuations.