Why FII billions aren't lifting Nifty stocks

Foreign investors poured over $3.2 billion into Indian equities in August, the highest monthly inflow since September 2024, yet the Nifty and Sensex both fell more than 1% during the month, breaking a historical pattern where FII buying triggered benchmark rallies. The divergence stems from flow composition, with over $1.2 billion entering through the primary market via IPOs and placements, which does not create broad demand for existing listed stocks. FIIs are also selectively buying large mid-caps while bypassing financials and IT, which together account for over 44% of the Nifty. Domestic institutional investors have infused $34 billion into equities in fiscal 2027, offsetting nearly $8 billion in FII outflows. Analysts say a sustained revival in secondary-market FII buying, particularly in index heavyweights, is needed for a meaningful large-cap rally.