FPIs Shift from Rate-Sensitive Sectors to Consumer Services in September

In September, foreign portfolio investors (FPIs) turned net sellers of Indian equities, offloading shares valued at ₹35,861 crore. This marked the end of a two-month period of net buying during July and August, when FPIs had purchased shares worth ₹29,631 crore, according to data from the National Securities Depository.

The month witnessed a notable shift in FPI investment patterns. Investors moved away from sectors sensitive to interest rate fluctuations, including banking, automotive, and oil and gas industries. Among the 24 sectors monitored, nine experienced net inflows, while 14 sectors saw net outflows in September. The healthcare and pharmaceutical sectors attracted investment, though domestic institutions contributed a larger portion of purchases compared to foreign institutional investors (FIIs).

Financial services recorded the steepest outflows by FPIs, with sales totaling ₹13,147 crore, a reversal from inflows of ₹10,494 crore in August. Other sectors with significant net selling included fast-moving consumer goods, metals and mining, telecommunications, automotive and automotive components, and oil, gas and consumable fuels, with outflows ranging between ₹3,000 crore and ₹6,900 crore. Meanwhile, consumer services stood out as the most favored sector, drawing ₹2,333 crore in inflows during the month.

A report from SBI Securities highlighted the broader context affecting these investment trends. It pointed to ongoing global macroeconomic pressures in 2026, such as elevated global interest rates, geopolitical uncertainty, and volatility in the rupee. These factors may have led foreign investors to view consumer services as a defensive sector offering relative stability.

India's growing middle-class population continues to bolster discretionary spending, supporting sectors like travel and tourism, hospitality and food services, retail, and e-commerce. These segments remain underdeveloped compared to more mature markets, providing long-term growth opportunities that attract institutional investment.

Healthcare and pharmaceuticals also serve as defensive sectors. Demand for medicines tends to be steady even during periods of inflation or economic instability, which supports higher price-to-earnings (P/E) ratios. In recent months, rising oil prices and persistently high interest rates have encouraged institutional investors to increase their holdings in pharmaceutical stocks, which trade at an average P/E of around 41 times earnings. Conversely, public-sector banks, oil and gas companies, and metals firms, which trade at lower valuations (approximately 7x, 11x, and 17x earnings respectively), have seen selling pressure.

According to SBI Securities, pharmaceuticals recorded cumulative net FII inflows of ₹2,117 crore in September, following over ₹13,600 crore in inflows during the previous two months. This reflects a sustained buying trend after a lengthy period of outflows from April 2025 to June 2026, indicating a strategic repositioning by investors toward this sector.

Within September, sectoral trends evolved between the first and second halves of the month. FPIs increased purchases in consumer services and textiles and shifted from net sellers to buyers in real estate. However, selling intensified in sectors such as metals and mining, telecommunications, automotive and automotive components, oil, gas and consumable fuels, financial services, construction materials, capital goods, and consumer durables.

This rotation in investment preferences underscores how foreign investors are responding to the combination of domestic and global economic conditions, adjusting their portfolios to mitigate risks associated with high interest rates and geopolitical uncertainties. The preference for consumer-centric and defensive sectors suggests a cautious approach focused on stable growth areas within the Indian equity market.