India's banking sector is witnessing a subtle shift in foreign investor preferences. Foreign institutional investors (FIIs) reduced stakes in 36 of the 50 Nifty companies in the first quarter of FY27 amid a host of sentiment dampeners, including soaring oil prices, rising inflation concerns, a weakening rupee and the absence of an AI-driven market rally.
But the selling has not been indiscriminate. Shareholding data for the June quarter suggests overseas investors have become increasingly selective, rotating within the banking space rather than exiting it altogether. While exposure to several large private sector banks has come down, FIIs have simultaneously increased stakes in a number of mid-sized and smaller private lenders, indicating a preference for banks with specific growth triggers and attractive fundamentals.
