Foreign institutional investors (FIIs) have pulled out over ₹2 lakh crore from India’s secondary markets in the first four months of 2026, and the trend reversal is unlikely anytime soon as markets remain vulnerable to global uncertainties and elevated crude prices.

According to data from National Securities Depository Limited (NSDL), FIIs have sold more than ₹2 lakh crore in secondary markets on a year-to-date (YTD) basis as of May 4, driven by valuation concerns coupled with geopolitical tensions. The scale of outflows is already close to the ₹2.4 lakh crore recorded for the full year 2025 and significantly higher than ₹1.3 lakh crore in 2024.

While foreign investors have been net sellers, domestic institutional investors (DIIs) have infused over ₹3 lakh crore into equities, helping cushion volatility and support the market. On a YTD basis, the benchmark BSE Sensex has declined more than 9%, while the Nifty 50 is down around 8%.

FII outflows have remained persistent through the year, with the sharpest selling seen in March at ₹1.2 lakh crore amid the West Asia crisis and a spike in crude prices. This was followed by outflows of ₹70,135 crore in April, ₹41,435 crore in January, and ₹6,640 crore in February.

In contrast, DIIs have consistently remained net buyers, counterbalancing foreign selling. Their highest monthly investment came in March at ₹1.42 lakh crore, followed by January (₹69,220 crore), April (₹51,063 crore), and February (₹38,423 crore).

V K Vijayakumar, Chief Investment Strategist at Geojit Financial Services, said a key trend in FPI flows this year is the divergence across Asian markets, with Japan, South Korea, and Taiwan attracting strong inflows, while India and some other emerging markets facing headwinds from the energy crisis and currency depreciation are witnessing outflows.

“An important factor driving capital flows is the AI trade, particularly in South Korea and Taiwan. Two companies in South Korea - Samsung and SK Hynix- and one in Taiwan- TSMC- are attracting the lions share of these inflows,” he said.

According to Vijayakumar, strong earnings performance from these companies is providing fundamental support to sustained FPI inflows into these markets. “So long as the AI trade continues, the trend of FPI outflows from India is likely to continue. However, there are concerns of overvaluations in AI stocks."

FII holdings hit record low of 17.1% in Nifty 500

FII ownership in the Nifty 500 has dropped to a record low of 17.1%, while domestic institutional investor (DII) holdings have climbed to an all-time high of 20.9%, highlighting a continuing structural shift in institutional ownership, according to a report by Motilal Oswal Financial Services.

The trend, which has been gaining momentum since 2021, reflects the growing dominance of domestic investors in Indian equities. Over the past one year, DII ownership rose 170 basis points year-on-year (up 50 bps sequentially) to 20.9% as of March 2026. In contrast, FII ownership declined 180 basis points year-on-year (down 110 bps sequentially) to 17.1%, from 18.9% in March 2025, the brokerage said in the report.

Within the Nifty 500 universe, FIIs and DIIs continued to show divergent trends. On a year-on-year basis, DIIs increased their holdings in 21 out of 24 sectors, with the most notable gains seen in private banks, technology, telecom, real estate, healthcare, and NBFC lending. However, sectors such as EMS, NBFC non-lending, and metals saw a reduction in DII holdings, the report noted.

On a sequential basis, DIIs recorded the highest increase in exposure to infrastructure, private banks, technology, real estate, telecom, logistics, and utilities.

FIIs, on the other hand, showed selective buying. On both a sequential and annual basis, they increased their exposure to metals, PSU banks, and logistics. However, on a year-on-year basis, FIIs reduced their holdings in 17 sectors, with the sharpest cuts seen in private banks, NBFC non-lending, EMS, real estate, technology, retail, consumer, healthcare, infrastructure, and utilities.