FIIs Dial Up Bets on Financials and Chemicals While Pulling Out of FMCG and Telecom

Foreign Institutional Investors (FIIs) kicked off June with a clear strategy: double down on sectors showing long-term promise and quickly exit others where near-term prospects seem murky. Financials, chemicals, oil & gas, and capital goods saw steady inflows, while FMCG and telecom were hit with sharp selloffs just weeks after enjoying significant foreign interest.

Confidence Rises in Financials, Chemicals, and Energy

Let’s start with where FIIs are feeling optimistic. In just the first 15 days of June, FIIs invested ₹1,405 crore in chemical companies and ₹1,199 crore in the oil and gas sector, continuing a trend that began in May. Back then, they poured ₹1,308 crore and ₹2,520 crore, respectively, into those sectors, showing a strong commitment to plays tied to industrial growth and global supply shifts.

Financials remain a cornerstone of their India strategy. Total net FII purchases across equities hit ₹4,685 crore in early June, up from ₹4,028 crore in May. According to Dipan Mehta of Elixir Equities, the specialty chemicals space is beautiful right now due to falling input prices and high capacity utilisation, both of which are helped by the ongoing “China+1” diversification trend.

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Capital Goods and Real Estate Join the Party

The rally didn’t stop there. FIIs also invested ₹1,191 crore in capital goods and an additional ₹403 crore in services. Real estate saw a notable turnaround, drawing ₹431 crore in new money in June after being sold off to the tune of ₹1,664 crore in May. The reversal likely reflects growing optimism about India’s infrastructure buildout and housing momentum.

FMCG stocks were the biggest losers from FII withdrawals, with ₹3,628 crore sold in the first half of June. That’s a steep reversal from May, when FIIs were net buyers of ₹815 crore. Telecom also underwent a significant shift, with ₹887 crore worth of shares sold just a month after receiving ₹8,089 crore in inflows.

So, what’s driving this switch? Most signs point to overvalued stock prices, slowing domestic consumption, and investors adjusting their portfolios ahead of earnings season and macroeconomic updates.

Outflows Continue Across Other Segments

Beyond FMCG and telecom, other sectors also faced pressure. Power companies experienced a second consecutive month of significant outflows, with ₹3,120 crore sold in June, following May’s ₹2,494 crore exit. IT and consumer durables weren’t spared either, with outflows of ₹1,713 crore and ₹1,893 crore, respectively. Even consumer services, which had previously seen modest sales, took a bigger hit this time, with ₹1,461 crore in June compared to ₹491 crore in May.

FIIs were net buyers in May, with strong inflows of ₹19,860 crore. However, by early June, that trend had reversed. According to The Economic Times, FIIs sold off ₹3,565 crore worth of equities by June 6. The trend continued into mid-June, with Angel One reporting an additional ₹1,246 crore in net sales for the week ending June 13.

Interestingly, while FIIs pulled back, Domestic Institutional Investors (DIIs) stepped in, using the dip to increase their holdings. Their buying has helped prevent any major shocks to the broader market indices.

Why These Moves? A Mix of Local and Global Drivers

In chemicals and financials, the appeal is obvious: strong fundamentals, improving margins, and long-term global trends, such as supply-chain realignment, are creating tailwinds. Oil & gas stocks, meanwhile, continue to benefit from steady demand and the energy transition story.

Capital goods and real estate are gaining on the back of rising infrastructure investments and housing demand.

As for FMCG and telecom? The pullback appears tactical, with high valuations, weak short-term demand, and caution ahead of Q1 earnings likely prompting investors to seek more attractive alternatives.

What’s the Bigger Picture?

This sector shuffle reflects broader caution. High valuations in sectors such as IT, telecom, and FMCG are triggering profit booking. Add to that a few global headwinds, U.S. economic indicators, geopolitical tensions, and interest rate differences, and it’s easy to see why FIIs are being more selective.

Domestically, the RBI’s unexpected rate cut (50 bps on repo and a 100 bps CRR reduction) has improved sentiment, especially among DIIs, who are helping stabilise the market while FIIs sit on the fence.

Expert Views and the Road Ahead

Investors are bullish on chemicals, citing increased contract volumes and expanded capacity. One analyst notes a shift away from mid-cap stocks toward large-cap quality stocks as investors seek safer ground.

That said, experts warn that factors such as trade conflicts and Middle East tensions may continue to impact FII flows. So, what should we keep an eye on?

• Upcoming Q1 earnings, especially in FMCG, telecom, and auto
• Domestic macro indicators like inflation
• International developments, including U.S. Fed policy and global trade dynamics

Final Take

In short, June has already brought a noticeable shift in FII strategy. While they’re bullish on sectors tied to growth and industrial recovery, they’re backing away from others weighed down by valuation and demand concerns. With domestic investors still confident and major data points around the corner, the next few weeks could see even more realignment in the market.

If you’re watching where the smart money is going, keep your eyes on both the inflows and the exits.