FII selling persists, but second-half recovery signals possible sentiment turnaround

Foreign institutional investors (FIIs) continued to sell Indian equities in October 2026, withdrawing a net $2.2 billion, although their activity recovered sharply in the second half of the month, signalling a possible improvement in sentiment. According to a report by Motilal Oswal Financial Services, technology, and telecom stocks attracted foreign inflows even as FMCG, financial services, and automobiles witnessed significant selling.

Indian equities rebounded from their lows even as several global markets declined amid concerns over interest rate hikes, elevated bond yields, rising crude oil prices, and questions over the sustainability of investments in artificial intelligence (AI) infrastructure. Uncertainty surrounding the US midterm elections further weighed on global risk appetite.

In contrast, domestic institutional investors (DIIs) maintained their buying momentum, recording net inflows of $6.3 billion in October and extending their buying streak to 39 consecutive months.

Technology attracts FII inflows; FMCG and financials face selling

FIIs were net sellers in 14 of the 20 sectors tracked by the brokerage during October. FMCG and financial services each saw outflows of around $1 billion while automobile stocks saw withdrawals of $800 million.

Technology emerged as the biggest beneficiary, attracting $1.4 billion in foreign inflows, followed by telecom with $700 million.

FCNR(B) inflows to support banking earnings

In the banking sector, Foreign Currency Non-Resident (FCNR-B) deposits mobilised $133 billion, exceeding market expectations and supporting business growth in Q2FY27.

ICICI Bank captured the highest market share at 13.4% while RBL Bank mobilised the highest FCNR(B) deposits as a proportion of its outstanding deposit base, at 26%. Public sector banks (PSBs) mobilised a relatively lower proportion, ranging between 2% and 5%.

Kotak Mahindra Bank and RBL Bank have the lowest leverage against their FCNR(B) deposits, providing greater scope to deploy surplus funds into higher-yielding assets. In contrast, several banks, including YES Bank and IDFC First Bank , have leveraged 70-86% of their FCNR(B) deposits. Aggregate leverage stood at around 58%.

The brokerage expects banking earnings to recover from Q4FY27 as surplus liquidity gets deployed and interest rate transmission supports revenue growth. It estimates systemic credit growth of 16.5% in FY27 and expects banking sector earnings to grow at a CAGR of around 17% between FY26 and FY28. Private banks are projected to outperform PSBs, with earnings growth of 22% against 11%.

Its preferred banking picks are ICICI Bank , HDFC Bank , Kotak Mahindra Bank, AU Small Finance Bank , and State Bank of India .

Cement prices rise 3%; demand recovery gathers pace

In the cement sector, price increases implemented in early October have largely sustained. The all-India average cement price, net of GST, increased by ₹9 per bag, or around 3% month-on-month.

Further hikes of ₹10-15 per bag to offset elevated input costs are expected after the festive season, subject to demand recovery and improved labour availability.

Demand improved as monsoon disruptions eased and construction activity picked up, particularly in northern and southern markets. Infrastructure execution, government capital expenditure and individual house-building activity supported volumes.

Imported petcoke prices remained elevated at $188-190 per tonne. However, the correction in crude oil prices to $96 per barrel, down around 17% from the peak, could help moderate fuel costs, although the benefits are likely to materialise with a lag.

Economic activity resilient, but growth may moderate

Motilal Oswal's Economic Activity Index (EAI) showed GVA growth improving to 6.9% year-on-year in September from 6.4% in August, driven by a recovery in services growth to 7% from 5.4%. Industrial growth moderated to 9.3%, while agricultural activity slowed to 0.1%.

EAI-GDP growth accelerated to 14.7% from 13% in August, supported by stronger net exports. Real exports grew 19.4%, while import growth slowed to 4.8%. However, October indicators pointed to some moderation. Passenger vehicle sales growth eased to 16.8% from 23.8% in September, while commercial vehicle sales growth moderated to 24.5% from 38.7%. Manufacturing PMI slipped to 54.7 while services PMI improved to 55.8.

The brokerage retained its FY27 real GDP growth forecast at 7.2%, above the RBI's 7.1% projection, while pegging nominal GDP growth at around 13.5%. Tighter financial conditions, elevated inflation and global uncertainty could, however, moderate economic activity in the second half of FY27.