FPIs Pull Out of Defensive Sectors, Rotate to Autos, Metals and Capital Goods in September

Foreign portfolio investors (FPIs) continued to reduce their exposure to Indian equities in September, marking the third consecutive month of net selling. Data from the National Securities Depository Ltd (NSDL) revealed that FPIs withdrew ₹23,885 crore during the month, taking total outflows for the calendar year through October 7 to over ₹1.61 lakh crore.

The selling spree was driven by stretched valuations in Indian stocks, a depreciating rupee, weak earnings growth, and global factors, including U.S. tariff tensions and an increase in H-1B visa fees. Investors pared holdings in defensive sectors such as information technology (IT), pharmaceuticals, and fast-moving consumer goods (FMCG), while selectively adding to cyclical and economically sensitive sectors like automobiles, capital goods, and metals.

Sector-Wise FPI Movements

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The automobile and auto components sector was the biggest beneficiary of FPI inflows, attracting ₹3,641 crore, supported by strong domestic demand, a GST rate cut, and festive season optimism. The capital goods sector saw ₹3,010 crore in inflows, reflecting confidence in India’s manufacturing push, increased government and private capital expenditure, and rising order books. Metals and mining attracted ₹1,840 crore in FPI investments, with most inflows coming in the first half of the month.

In the financial services sector, FPIs remained cautiously positive, investing ₹992 crore, mostly during the early part of the month. In contrast, defensive sectors witnessed significant outflows. Healthcare topped the sell list, with ₹6,122 crore withdrawn amid concerns over U.S. trade policies. IT stocks saw ₹6,050 crore in outflows due to worries about higher H-1B visa fees. FMCG recorded net FPI selling of ₹4,202 crore, with consumer durables and consumer services sectors witnessing exits of ₹3,627 crore and ₹3,360 crore, respectively. Other sectors facing outflows included power (₹2,693 crore), telecom (₹2,422 crore), and realty (₹2,259 crore).

Analysts’ View and Outlook

Experts interpret the September trend as a clear rotation by FPIs, shifting from defensives to sectors likely to benefit from economic growth. Vipul Bhowar, Senior Director and Head of Equities at Waterfield Advisors, noted that while investors are selling in high-valuation sectors, they are still actively participating in primary markets to capture potential growth opportunities. VK Vijayakumar, Chief Investment Strategist at Geojit Investments, highlighted that FPIs’ strategy of moving funds to cheaper markets has been profitable, and with India’s valuation gap narrowing and earnings expected to improve in FY27, selling is likely to moderate in the coming months.

Conclusion

September’s FPI activity underscores a strategic shift from defensive to cyclical sectors amid global uncertainties and valuation considerations. While selling pressure persists in IT, pharma, and FMCG, inflows into autos, metals, and capital goods highlight investor optimism in India’s economic growth story and domestic consumption trends.