FII Sales: Foreign Institutional Investors (FIIs) have been steadily withdrawing their money from the largest and most reliable companies in the Indian stock market. Data for the quarter of June to September 2026 shows that foreign investors invested Rs. At least 53 large companies with a market cap of Rs 1 lakh crore or more have reduced their stake. This heavy sell-off has raised a big question in front of the market whether the growth engines of India’s blue chip shares i.e. large companies have now slowed down.
The impact of these sales is clearly visible on the country’s largest companies. Foreign investors’ stake in HDFC Bank, the country’s largest private bank, fell 2.43 percent, while its shares have lost 30 percent so far this year. Foreign shareholding in Reliance Industries, the country’s largest company by market value, declined by 0.52 percent.
Reliance shares have fallen 24.2 percent so far this year. Apart from this, foreign investors reduced their holdings in PFC (2.71 percentage points), Axis Bank (1.86 percentage points), Cummins India (1.72 percentage points), Mahindra & Mahindra (1.55 percentage points), Vedanta Aluminum (1.52 percentage points) and ITC (1.10 percentage points). Shares of major companies like TCS, Bharti Airtel, Maruti Suzuki, Hindustan Unilever, HDFC Life Insurance also fell due to overseas selling.
Complete list of all 53 companies
Big companies became mere cash flow machines
Market experts believe that this decline is not just a temporary withdrawal of money. This is an indication that India’s old and established companies may no longer be in a position to create massive wealth in the future. According to Jimmyt Modi, founder and CEO of Semco Securities, the stock market always moves forward. The market sees what is going to happen in the next 12, 18 or 36 months.
Jimit Modi says Nifty’s current structure does not keep the future in mind. These companies have had a great history, but have a very limited presence where new money will come in the future. According to him, new technology, innovation and new themes will create huge wealth in the future, but these things are negligible in existing large-cap companies. These large companies are now mere cash flow generating machines, with no engines of growth or innovation left. This is the reason why global investors are now distancing themselves from them. Avendus Wealth also believes that most of India’s large companies are now mature. At the same time, in new emerging sectors like electric vehicles, semiconductors, batteries, solar, such large Indian companies are not yet ready to compete globally.
Despite the sell-off, these stocks gave strong returns
What is surprising is that sales by foreign investors have not had the same effect on all companies. Some stocks have earned handsomely even after withdrawing foreign currency. Paytm’s parent company One97 Communications saw the biggest fall in foreign stake by 4.57 percentage points, but the share has still gained 24 percent this year. Similarly, apart from Adani Power (0.73 percentage point cut), Sun Pharma (0.18 percentage point cut) also posted positive returns despite foreign sales. At the same time, foreign investors reduced their stake in Sterlite Technologies by 1.95 per cent while booking profits, as the stock has seen a huge rally of nearly 700 per cent this year.
Hopes rekindled due to cheap valuations
On the one hand there is concern about growth, on the other hand many market experts believe that the prices of major stocks have now become quite reasonable after a continuous decline. Ashutosh Tiwari, MD and CIO, Equirus Asset Management, says valuations of large-cap stocks have declined significantly as the market has remained almost flat for the past two years. Due to this, the risk is reduced and the profit margin is better. He believes that these large stocks will benefit the most due to better liquidity whenever foreign investors return. Equirus currently prefers small-caps over mid-caps over large-caps.
Motilal Oswal’s report also points in the same direction. According to the brokerage firm, large-cap valuations are now 18 percent below their historical average, while mid-cap valuations are 8 percent below their historical average. Motilal Oswal expects the company’s earnings to grow at a compound annual rate of 15 percent between fiscal 2026 and 2028. Although they do not expect quick returns on foreign investment immediately, cheap valuations have made the Indian stock market attractive for investment.
If there is a slowdown in IT, there will be strength in the banking sector.
According to Harald van der Linde, head of Asia Pacific equity strategy at HSBC, on the surface India appears to be the most expensive market in Asia as FTSE India is trading at 19 times earnings. But if we go deeper, the picture looks different. Nifty-50 is currently trading at 16 times 12 months forward PE. This has happened only twice in the last decade. Mid-cap valuations have also fallen 13 percent from their five-year average to 24 times earnings.
Sector-wise, valuations in private banks, IT services, real estate, consumer staples declined significantly. The IT sector is currently trading at 18 times forward earnings, lower than its five-year average of 23 times. But this cheapness is due to poor development. The impact of AI has reduced the IT sector’s earnings growth from 4-5 percent to 2-3 percent. According to HSBC, fiscal 2027 will be the toughest year for the IT sector, although 2028 to 2029 may see some recovery. The growth forecast for consumer staples has also declined to 8 percent for the year 2026 from 12 percent in March 2026.
On the other hand, the financial sector is looking good. The sector is trading nearly 30 percent below its five-year average. Demand for loans in MSME, corporate and retail is strong. However, Ashutosh Tiwari believes that apart from the increased competition, the profit, i.e. the net interest margin of the banks, may be marginally lower than before due to falling CASA ratio. Although, Avendus Wealth expects the performance gap of mid-small caps with large stocks to narrow in the coming days, investors will have to pick stocks very carefully given the expensive valuations.
