Foreign institutional investors (FIIs) have reduced their holdings in a number of Indian companies whose market capitalisation exceeds ₹1 lakh crore, and the sell‑off has coincided with sharp share‑price declines for many of those stocks. Data compiled from recent quarterly filings shows that HDFC Bank, ITC, Mahindra & Mahindra, Reliance Industries and several other blue‑chip names have all seen foreign ownership fall while their equity prices have slumped this year.
Key ownership cuts and price moves
HDFC Bank recorded the steepest decline in foreign ownership among the group, with FII stakes dropping 2.43 percentage points and the bank’s shares losing roughly 30 % year‑to‑date. ITC’s foreign holding slipped by 1.01 percentage points, and Mahindra & Mahindra saw a 1.55‑point reduction. Reliance Industries, India’s largest company by market value, experienced a 0.52‑point fall in FII ownership and its stock fell 24.2 % YTD.
Other members of the ₹1 lakh crore club that reported declining foreign participation and falling share prices include Tata Consultancy Services, Bharti Airtel, Maruti Suzuki India, Hindustan Unilever and HDFC Life Insurance. The pattern suggests a broad‑based pullback from the large‑cap segment, which has traditionally anchored the Nifty 50 index.
Divergent outcomes and sector nuances
Despite the overall trend, the data also reveal notable exceptions. One97 Communications, the parent of Paytm, saw foreign ownership plunge by 4.57 percentage points, yet its share price rose 24 % YTD. Both Adani Power and Sun Pharmaceutical posted positive returns even as FIIs trimmed their positions. Sterlite Technologies experienced a 1.95‑point fall in foreign ownership while its stock surged nearly 700 % YTD, a gain largely driven by a speculative rally.
These outliers underscore that FII exits have not produced a uniform impact across the market. Certain stocks have managed to rally on domestic buying, sector‑specific catalysts or heightened volatility, while many of the traditional large‑cap stalwarts have lagged.
Analyst commentary on valuation and growth potential
Market participants are interpreting the outflows through the lens of valuation and future earnings potential. Jimeet Modi, founder and chief executive officer of Samco Securities, told ET Markets that “markets are forward‑discounting machines.” He added that the Nifty 50, while rich in history and legacy, “has very little of what future wealth creation and value creation will happen.” Modi argued that the current large‑cap universe is dominated by companies that grew large because of past performance rather than positioning at the centre of emerging technologies, innovations and new themes. He described the large‑cap segment as a “cash‑flow engine” rather than a “growth engine” or “innovation engine.”
Strategists at Equirus Asset Management see a different angle. Managing director and chief investment officer Ashutosh Tiwari noted that large‑cap valuations have moderated after nearly two years of flat market performance, improving the risk‑reward profile. He expects large‑caps to be primary beneficiaries of any revival in FII flows because of their higher foreign ownership and superior liquidity. Equirus presently favours large‑caps, followed by small‑caps, while viewing mid‑caps as relatively less compelling.
Motilal Oswal highlighted that sustained selling in large‑cap‑heavy sectors has contributed to the underperformance of large‑caps relative to small and mid‑caps over the past two years. Nevertheless, the brokerage points out that large‑cap valuations are now about 18 % below historical averages, with mid‑cap valuations 8 % below. The firm projects corporate earnings to grow at a 15 % compound annual rate between FY 26 and FY 28, even as it does not anticipate a sharp recovery in FII inflows in the near term.
Herald van der Linde, head of equity strategy for Asia Pacific at HSBC, warned that on the surface India appears expensive. The FTSE India index trades at 19 times earnings, the highest multiple in Asia. Yet the Nifty 50’s forward price‑to‑earnings ratio of 16 times has been reached only twice in the past decade, suggesting a degree of valuation compression. Mid‑cap valuations have eased to 24 times earnings, about 13 % below their five‑year average. Valuation declines have been most pronounced in private banks, IT services, real‑estate and consumer staples.
In the IT services space, forward earnings multiples have fallen to 18 times, down from a five‑year average of roughly 23 times, reflecting weaker growth. Sector earnings growth has decelerated from 4‑5 % in recent years to around 2‑3 %, partly due to AI‑led deflationary pressures. HSBC expects FY 27 to be the most challenging year for the sector, with a modest recovery in FY 28‑29 that would likely deliver only mid‑single‑digit growth.
Consumer staples have also seen valuation pressure, trading at 35 times forward earnings despite a drop in full‑year CY 26 growth expectations from 12 % to 8 %. By contrast, financials appear more attractively valued, with the sector trading at 1.7 times forward price‑to‑book, about 30 % below its five‑year average of 2.4 times. Large private banks have underperformed for an extended period, yet credit growth remains robust across MSMEs, corporates and retail borrowers.
Tiwari cautioned that banks face structural headwinds, including rising competition, declining CASA (current account‑saving account) ratios and greater prudence among customers, which could keep net interest margins lower than in the past. He does not expect BFSI valuations to return to historic peaks.
Avendus Wealth echoed the theme of a structural gap between mature large‑cap businesses and emerging sectors such as electric vehicles, semiconductors, batteries and solar. The firm expects market leadership to broaden and for large‑caps to narrow their performance gap with mid‑ and small‑caps, but it also warns that several mid‑ and small‑cap pockets are now demanding on valuations, increasing the importance of selective stock‑picking.
Outlook for foreign capital and Indian equities
The mixed evidence on price performance, combined with divergent analyst views, suggests that the impact of FII outflows on India’s equity market is nuanced. While the withdrawal has undeniably weighed on sentiment and contributed to the recent underperformance of the large‑cap index, lower valuations have improved the risk‑reward calculus for many investors. The consensus among the quoted strategists is that, should foreign inflows resume, large‑caps could benefit from their liquidity and higher foreign ownership.
However, the broader narrative points to a shift in what investors may be seeking. Global capital appears to be rewarding companies with clear growth trajectories tied to new technologies and innovation, rather than those that primarily generate cash flow from legacy businesses. As Jimeet Modi observed, “there is very little of the future that is getting captured in the current state of the large‑cap index.” The challenge for India’s biggest firms will be to demonstrate that they can evolve into engines of future wealth creation, thereby attracting the next wave of foreign capital.
In the meantime, domestic investors and fund managers are likely to focus on valuation differentials, sectoral earnings outlooks and the evolving competitive landscape. The interplay between FII sentiment, corporate earnings growth and the pace of structural transformation will shape the performance of India’s ₹1 lakh crore club in the months ahead.
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