Rs 1 lakh crore FII selloff in 6 sectors! Are you still holding the wrong stocks?

Time of India

23-06-2025

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Foreign institutional investors (FIIs) have gone on a selling spree, offloading nearly Rs 1 lakh crore worth of Indian equities in just six months across six key sectors of consumer durables FMCG , and IT . The sharp pullback, concentrated in segments once considered defensives or structural bets, underscores rising concerns around valuations, global macro uncertainty, and a shifting earnings landscape.The biggest casualty is the IT sector, which alone has seen Rs 33,479 crore in net FII outflows, or a third of total selling. This is followed by FMCG (Rs 17,819 crore), auto (Rs 16,058 crore), consumer services (Rs 14,417 crore), power (Rs 12,231 crore), and consumer durables (Rs 11,296 crore).'We continue to maintain our underweight stance in the IT sector, as we foresee a slowdown in overall IT spending in the US market and a probable delay in discretionary spending,' said Neeraj Chadawar, Head of Fundamental and Quantitative Research at Axis Securities. 'Guidance and commentary remain critical for the sector going forward.'The broad-based nature of the selling suggests a structural de-risking rather than just profit-taking. Even construction (-Rs 9,322 crore) and healthcare (-Rs 9,048 crore) have witnessed sharp outflows. In contrast, only a handful of sectors have seen net FII inflows, including telecom (Rs 23,065 crore) and financials (Rs 9,456 crore).Despite the bounce-back in domestic equities since April, foreign investors remain wary. FIIs were net sellers in four of the six months this year, including massive outflows of Rs 78,027 crore in January and Rs 34,574 crore in February. Even June, so far, has seen a net selloff of Rs 5,404 crore (till June 15).'Export-facing sectors will be in a wait-and-watch mode… domestic-facing sectors will likely lead from here,' Chadawar added, highlighting the impact of reciprocal tax measures and global macro risks.The retreat comes amid a strong equity rally that has made valuations appear frothy, particularly in mid- and small-cap segments. According to Jefferies' Chris Wood, the Nifty Midcap 100 Index now trades at 27.1x forward earnings, even as the Nifty itself is at 22.2x—well above its historical median.'Valuations have become an issue again, particularly in the mid-cap space,' Wood wrote in his GREED & fear report. 'The equivalent of $7.2 billion of equity supply was raised last month and $6 billion so far in June. It is this supply which poses the main risk to the market.'Wood noted that domestic flows and sentiment remain strong, especially in consumer finance stocks. However, FII positioning indicates growing concern about over-valuation and saturation in parts of the market.Beyond valuation, earnings downgrades and growth moderation are another red flag. HSBC, in its Q4 review, flagged weak topline performance in consumer staples and slowing credit growth in banks.'Demand for consumer staples was subdued, while competitive intensity remains high… Growth for banks moderated to a single-digit rate amid margin pressures,' the HSBC note said, adding that 'a sustained recovery in earnings growth is still a few quarters away.'The IT sector, despite posting 6% net income growth, continues to suffer from poor visibility in US demand, weak discretionary spend, and macro uncertainty in export markets. This aligns with Chadawar's view that export-oriented sectors remain underweight, pending clarity on reciprocal trade measures.Interestingly, not all foreign investors are pulling back entirely—they're simply rotating. FIIs have made significant investments in telecom (Rs 23,065 crore) and to a lesser extent in financials (Rs 9,456 crore), services (Rs 7,351 crore), and chemicals (Rs 4,863 crore).'From a long-term valuation and earnings visibility perspective, our portfolio is currently tilted towards cyclicals,' said Chirag Mehta, CIO, Quantum AMC. 'We believe the global macro challenges do not derail India's domestic cyclical recovery. Sectors like banking, consumer discretionary, materials, and utilities appear attractive.'While Mehta remains cautious on IT, he believes continued correction could create long-term entry opportunities, especially in high-quality names with consistent earnings power.Even Jefferies' GREED & fear India portfolio is shifting gears. Positions in L&T, Thermax, and Godrej Properties are being exited, replaced with TVS Motor, Home First Finance, and Manappuram Finance. Additional exposure is also being added to PolicyBazaar and Bharti Airtel, signaling a shift to consumption- and credit-focused themes.While domestic flows remain robust, the intensity and concentration of FII selling, especially in IT, FMCG, and auto, should not be ignored. With nearly ₹1 lakh crore of outflows in six months, the foreign money is clearly betting on earnings downgrades, valuation fatigue, and a global demand slowdown.'We seek out quality, high-integrity businesses at reasonable valuations… Our value-conscious approach often leads us to sectors that may be out of favour but possess strong fundamentals,' Mehta said.For investors navigating this turbulent landscape, the data suggests a clear bifurcation: domestic-oriented sectors like telecom and financials are attracting foreign capital, while export-dependent sectors face sustained selling pressure. The challenge lies in timing entry points as valuations remain elevated despite the sectoral rotation.(Data: Ritesh Presswala): Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times)