Motilal Oswal Report: FIIs Show Recovery in Late October as Domestic Inflows Continue

Foreign institutional investors (FIIs) stepped up purchases of Indian equities in the second half of October, while domestic institutional investors (DIIs) continued their buying streak for the 39th consecutive month, according to a report by Motilal Oswal Financial Services.

Volatility in foreign institutional investment flows has been a key overhang for Indian markets. However, FII outflows appeared to ease, witnessing a strong recovery in the second half of October following sustained selling in the previous month.

FIIs recorded net outflows of USD 2.2 billion from Indian equities in October 2026. This activity reversed in the second half of the month, bringing in net inflows of USD 2.8 billion, which followed outflows of USD 5 billion in the first half.

On a year-to-date basis, FIIs have withdrawn a record USD 30.4 billion from Indian equities in calendar year 2026. Financial services witnessed the highest outflows at USD 13.2 billion, followed by automobiles at USD 4.9 billion and FMCG at USD 4.5 billion. In contrast, services, metals, and capital goods attracted foreign investments during the same period.

Sector-wise, foreign investors remained selective during October. Technology and telecom attracted the highest inflows, with FIIs investing USD 1.4 billion in the technology sector and USD 700 million in telecom. Conversely, FMCG and financial services witnessed withdrawals of around USD 1 billion each, while automobile stocks saw outflows of USD 800 million.

Motilal Oswal noted that India's healthy macroeconomic fundamentals, strong corporate earnings, improved valuations, and robust domestic liquidity could help attract foreign investors if global investment sentiment improves. The brokerage added that a meaningful correction in valuations from 2024 peak levels and any moderation in the global AI trade could encourage a stronger and more sustained revival in FII interest in relatively underperforming emerging markets like India.

Meanwhile, domestic institutional investors maintained market support by investing USD 6.3 billion in Indian equities during October, extending their continuous buying streak to 39 months. The report also highlighted that easing foreign investor selling in large-cap-heavy sectors supported the relative performance of large-cap stocks compared with mid- and small-cap stocks.

Looking ahead, Motilal Oswal stated that continued improvement in FII sentiment, coupled with easing geopolitical challenges, could help offset market headwinds from the past two years and lay the foundation for a sustained market rally. Global markets faced pressure in October due to concerns over interest rate hikes, elevated bond yields, higher crude oil prices, and uncertainty surrounding returns on AI-related capital expenditure.

"The recent shift in foreign institutional investor activity during the second half of October highlights the resilience of Indian equities amidst global macro uncertainties. While year-to-date outflows remain substantial, strong domestic liquidity and sustained support from DIIs continue to provide a vital cushion for the market. Going forward, domestic fundamentals and corporate earnings will remain key drivers as investors navigate global interest rate trends and sector-specific shifts." — Dr. Shishir Gupta, Founder & CEO, StartupLanes