Is your portfolio FII-proof? 7 stocks Jefferies says can defy the $53 billion foreign selloff

Foreign institutional investors (FIIs) have pulled a massive $53 billion out of Indian equities since late 2024, dragging down several frontline stocks even as domestic institutions step in as the new dominant force in the market, according to Jefferies.

This relentless exodus has weighed on returns, with MSCI India declining about 8 per cent between September 2024 and May 2026 and underperforming MSCI Emerging Markets by a staggering 67 percentage points in dollar terms, the brokerage pointed out in a note. Jefferies linked the selling to an “unfavourable valuation-growth scenario for Indian stocks vs Asia,” driven particularly by surging earnings in semiconductor and memory names in Taiwan and Korea.

Despite the recent underperformance, MSCI India still trades at a 70 per cent price-to-earnings premium to emerging markets, “a tad above average” and higher than the 10-year mean of 62 per cent, the note said.

Jefferies highlighted that earnings upgrades for TSMC, Samsung Electronics and SK Hynix have taken their combined CY26 earnings estimates to 3.5 times the level eight months ago, sharpening the growth differential against India.

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From foreign-led to ‘domesticated’ market

Sustained FII selling has pushed foreign ownership in BSE 500 companies down by about 1.3 percentage points since September 2024 to a 10-year low of 18.3 per cent as of March 2026, Jefferies’ analysis showed. On the other hand, domestic institutional investors (DIIs), comprising mutual funds, insurers, and pension funds, have absorbed much of this supply.

Jefferies estimated that DIIs have recorded roughly $147 billion of net equity purchases since the FII selloff began in September 2024, taking their shareholding in BSE 500 companies to a record 18.6 per cent, finally above that of foreign investors. “The opposite end of the FPI flows continues to be held up by the DIIs,” the report noted, adding that it expects sustained DII inflows of about $65 billion a year.The brokerage described the Indian market as increasingly “‘domesticated’,” as rising local ownership and steady domestic flows help cushion the impact of continued foreign selling on individual stocks. Its strategy screen focuses on where “enough hands have changed from FIIs to domestic institutional investors” to soften further potential FII pressure.

Jefferies’ seven ‘domestic favourites’

Jefferies examined companies with market capitalisation above $10 billion using the ratio of FII to DII ownership as a proxy for institutional influence. A declining FII/DII ratio signals either foreign selling or incremental domestic buying, “implying a shift toward domestic ownership,” the report said.

Out of 92 such stocks under its India coverage, FII holdings declined in 61 names over March 2025 to March 2026. Within this universe, 16 counters have transitioned from being predominantly FII-owned to predominantly DII-owned, with an FII–DII ratio now below 1. “These stocks are likely to see incrementally lower pressure if FII selling were to persist,” Jefferies argued.

Within this domestically dominated basket, the brokerage flagged seven names where its analysts maintain a ‘Buy’ rating: Eternal, Kotak Mahindra Bank, Godrej Consumer Products (GCPL), Siemens, JSW Energy, Mankind Pharma and IndiGo. “Among such stocks, we like Eternal, Kotak Bank, JSW Energy, IndiGo, and GCPL,” Jefferies said, while also listing Siemens and Mankind among Buy-rated ideas in the group that have seen foreign-to-domestic ownership shift.

The report suggested that these “new domestic favourites” could prove relatively resilient if FIIs continue to pare exposure, given that DIIs now exert greater influence on their shareholder base.

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Stocks still vulnerable to foreign selling

While the ownership transition offers a buffer in some counters, Jefferies also identified names that remain more exposed to another leg of foreign selling. It found 15 stocks with an FII-DII ratio still above 1.5 times and “no significant DII buying” over March 2025-March 2026.

Among these, the brokerage highlighted DMart, Hero MotoCorp, Hindalco and Wipro as stocks where its analysts have a Hold or Underperform rating. Jefferies suggested that such counters, where foreign ownership remains high and domestic participation relatively muted, could face “relatively higher incremental pressure” if FII selling persists.

A broader ownership table in the report showed several large-cap financials, metals, consumer and industrial names still carrying FII-DII ratios above 1.5, including GMR Airports, Torrent Pharma, JSW Steel and HDFC AMC, even as some of these have seen marginal shifts in favour of domestic investors.

Light FII positioning, but flows may take time to turn

Jefferies’ study of 70 large emerging-market funds with combined assets of about $320 billion indicated that global investors are now underweight India by 0.4 percentage point versus the MSCI EM benchmark, compared with a 10-year average overweight of 2.2 percentage points. Moreover, 61% of these EM funds are underweight India, reflecting both lighter positioning and a loss of breadth in the country’s overweight status.

Yet, the brokerage cautioned that the flow backdrop may not reverse quickly. With India’s valuation premium still elevated and earnings upgrades skewed towards AI-linked hardware majors in other Asian markets, Jefferies argued that “FPI flows may take time to turn,” even if domestic flows remain robust enough to keep the market “domesticated” and provide selective opportunities in DII-dominated stocks.