Bank of America warned that foreign institutional investor selling in Indian equities is likely to extend well into 2027 as global macro headwinds persist. FIIs have been net sellers through much of 2026, driven by the Iran war, rising oil prices and higher U.S. interest rates.
The Sensex has corrected roughly 12 percent from its 2025 peak of 86,159, reflecting sustained outflows. BofA analysts said emerging market allocations are under pressure as investors favor safe-haven assets and reduce exposure to oil-importing economies. India imports more than 80 percent of its crude requirements.
Domestic institutional investors including mutual funds and insurance companies have partially offset foreign selling, preventing sharper declines. However, BofA said the breadth of FII exit suggests a multi-year adjustment rather than a temporary dip. Sectors most dependent on foreign ownership, including financials and IT, have underperformed.
Market participants are watching U.S.-Iran negotiations for signals that could stabilize energy markets and reverse the outflow trend. Until then, analysts recommend defensive positioning in pharmaceuticals and domestic consumption stocks. The rupee’s recent stabilization near 95.73 per dollar provided modest relief but did not trigger a broad return of foreign capital.
Domestic institutional investors have partially offset foreign selling through mutual fund inflows, preventing sharper benchmark declines. BofA recommended defensive positioning in pharmaceuticals and domestic consumption until energy markets stabilize. The Sensex remains about 12 percent below its 2025 peak of 86,159.
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Sources:
https://www.business-standard.com/markets