FIIs Slash Allocation To India’s Top 10 Blue-Chip Stocks From 41% To 21%: What’s Driving The Shift?

Foreign institutional investors (FIIs) have slowly cut their holdings in India’s biggest blue-chip stocks over the past four years. A large part of global money moved towards artificial intelligence (AI)-focused markets and economies linked to the semiconductor sector. Data showed the top 10 stocks in FII portfolios made up 40.9% of total India allocation in March 2022. By March 2026, that share had dropped to 21.3%.

Apart from these, Asian Paints and Tech Mahindra now account for only 0.4% each in foreign portfolios, while Hindustan Unilever’s share has dropped to 0.8%.

Why Are FIIs Cutting Exposure To Indian Blue-Chip Stocks?

Market experts say the bigger driver appears to be a global reallocation of capital away from India and towards markets benefiting more directly from the artificial intelligence boom.

India’s weight in the MSCI Emerging Markets Index has fallen from above 20% around two years ago to just over 12% currently. At the same time, FII ownership in Indian equities has declined to around 14.7%, the lowest level in nearly 14 years.

The shift became more visible after 2022, when global investors increasingly moved capital towards US technology companies and AI-linked sectors. Taiwan and South Korea have attracted stronger foreign flows because of their larger exposure to semiconductor and AI-linked businesses.

Why Have IT And Banking Stocks Seen The Biggest Hit?

Foreign ownership collectively in Infosys, TCS, HCL Technologies and Tech Mahindra fell sharply from 12.4% in March 2022 to 4.7% in March 2026. During the same period, the Nifty IT index fell nearly 40%.

Several factors weighed on the sector. Global companies slowed technology spending, client decision-making became more cautious and demand visibility weakened across key markets. Investors were also worried that rapid AI adoption could affect parts of the traditional outsourcing business model.

Banking stocks also saw lower foreign investor interest.

HDFC Bank, which was once the largest holding among FIIs, has lagged the broader market since its merger with HDFC Ltd. Analysts say concerns around integration and slower near-term growth kept investor sentiment subdued.

Dollar-adjusted returns have also become less attractive for foreign investors. Between March 2022 and May 2026, the market delivered returns of around 35% in rupee terms. But for foreign investors, the picture looked very different after accounting for rupee depreciation of nearly 27-28% during this period.

During the same period, US markets delivered stronger dollar returns, while US Treasury yields moved into the 4-5% range, offering relatively safer returns without emerging-market currency risk.

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Are FIIs Starting To Return To Indian Markets?

Despite the sharp reduction in ownership, experts noted that India’s valuation premium over other emerging markets has moderated from nearly 100% earlier to around 66%.

Some recent trading sessions have also seen foreign inflows returning despite global uncertainty, volatile crude oil prices and geopolitical tensions.

According to market experts, FIIs are not entirely abandoning Indian blue-chip companies. Rather, they are reassessing risk-reward dynamics as global investment opportunities evolve.

Source:

The Economic Times