Since late 2024, foreign institutional investors (FIIs) have withdrawn $53 billion from Indian equities, causing significant declines in several frontline stocks. According to Jefferies, the MSCI India index has dropped about 8% between September 2024 and May 2026, underperforming MSCI Emerging Markets by 67 percentage points in dollar terms. This selling trend is attributed to an unfavorable valuation-growth scenario for Indian stocks compared to other Asian markets, particularly due to strong earnings growth in semiconductor companies in Taiwan and Korea.

As a result of sustained FII selling, foreign ownership in BSE 500 companies has decreased to a 10-year low of 18.3% as of March 2026. In contrast, domestic institutional investors (DIIs) have absorbed much of this sell-off, recording net equity purchases of approximately $147 billion during the same period, raising their ownership to 18.6% in BSE 500 companies.

Jefferies has identified seven stocks that are likely to withstand further FII selling pressure due to increased domestic ownership: Eternal, Kotak Mahindra Bank, Godrej Consumer Products, Siemens, JSW Energy, Mankind Pharma, and IndiGo. However, some stocks, including DMart and Hero MotoCorp, remain vulnerable due to high foreign ownership and limited domestic buying. Overall, while the Indian market is becoming more domesticated, the flow of foreign investment may take time to recover as valuations remain high.