Top Stock Picks: Foreign exodus from Indian equities has reached a tipping point, with outflows at a record 14-year low in the first quarter of calendar year 2026. Notably, foreign ownership in the Indian markets has fallen below domestic institutions for the first time in over two decades, noted Goldman Sachs in a recent note.

However, the brokerage firm highlighted that this heavy selling may soon plateau, but a re-entry of foreign investors is still not on the cards. In the given scenario the global brokerage has identified 12 stocks with light foreign positioning and ownership as 'Alpha Picks'

"The bulk of foreign selling is likely over, after record outflows over the recent months. Various approaches using flows, positioning and ownership trends suggest foreign flows are now close to downside scenarios. After record $22bn outflows ytd, we estimate the downside risk of incremental foreign selling could be limited at about $4-5bn," the brokerage said.

The note said that FII share fell to 16 per cent, while DII share rose to 17 per cent, based on the calendar year's first quarter shareholding filings by listed companies. Across market cap, the decline in foreign share was led by large caps, where ownership fell to its 10-year low. Across sectors, the qoq decline was the most pronounced in banks, real estate, and consumer retail & services, while metals, utilities, and industrials saw foreign ownership rise. Among domestic participants, mutual fund ownership rose to fresh highs in 1Q, whereas direct retail participation declined.

However, the report noted that Global active funds are underweight India by 220bps, versus deeper underweight positioning in China at negative 290bps. If funds were to lower India exposure closer to China's, that would translate to USD 8 billion of selling from funds in Goldman Sachs's sample.

Why Re-entry Remains on Hold

While Goldman Sachs notes that the heavy FII selling may have reached its peak and is on a downward trend here onwards, it has highlighted three key reasons why a re-entry is delayed.

1. One of the key reasons behind a slowdown of foreign interest in Indian equities is oil prices. The report noted that empirical evidence suggests FII flows do not immediately return when oil prices fall. "Foreign capital did not return to Indian equities in the early-April oil correction, despite the significant sell-off during the preceding oil rally in March. Past evidence shows that foreign flows tend to be modestly positively correlated with falling oil prices in the short-term"
2. Another factor behind the disinterest is earnings revision. The report highlighted that changes in earnings have become an increasingly important variable guiding foreign flows in Indian equities. While much of foreign selling may have already occurred in anticipation of the forthcoming downgrade cycle, low visibility around a recovery will likely limit foreign re-buying in the near-term.
3. The third key factor is valuations as per the global brokerage. GS said that Compared to North Asian markets, India offers a less attractive risk/reward as it trades at significantly higher growth-adjusted valuations, on top of the ongoing investor concerns over the potential adverse impact of AI.