Smart Money Moves In July: SEBI RA Rohit Mehta Decodes Sector Rotation

SEBI-registered analyst Rohit Mehta noted that smart money is flowing into Indian equities from institutional investors in July. He observed that the Nifty index is hovering around a major resistance zone of 25,700–26,000, while broader markets outperformed large caps. Volatility has increased slightly ahead of the first quarter (Q1 FY26) earnings, which are scheduled to begin next week. He said that a clear sector rotation is underway in the markets currently.

Analysing foreign money trends, Mehta observed that Foreign Institutional Investors (FIIs) shifted from a period of net outflows earlier in the year to becoming net buyers in July, with recent weekly inflows of ₹5,000–₹6,000 crore. 

What Are FIIs Buying?

According to him, FIIs have been increasing their exposure to sectors such as BFSI (private banks, NBFCs), auto and auto ancillaries, and select midcap IT services, as they benefit from rate cut expectations, optimism around electric vehicles and AI-driven outsourcing trends. 

On the other hand, FIIs are reducing their positions on FMCG due to valuation and rural demand concerns, as well as in pharmaceuticals amid global price pressures and regulatory overhang. This shows that they are shifting their focus from defensives to cyclical sectors.

What Are DIIs Buying?

Domestic Institutional Investors (DIIs) have continued to provide support to the markets, particularly by buying on dips and through mutual fund allocations. 

Mehta noted that they are focusing on infrastructure, railways, capital goods, public sector banks, and power and renewable energy sectors, driven by policy initiatives and the government’s infrastructure push.  DIIs are also booking profits in large-cap IT stocks and select defensive names, indicating their preference for policy-driven and high-visibility growth stories.

Both FIIs and DIIs are favoring sectors with growth and visibility, but their pace differs, he added. 

What Next?

Going ahead, Mehta feels that this resurgence in FII inflows could trigger the Nifty to break out above 25,700, while any sudden reversal by DIIs could trigger short-term weakness in midcaps. Historically, any divergence between FII and DII activity has marked key turning points in the index. 

He advised traders to align investment strategies with the institutional flows and to use FII/DII trends as a macro confirmation tool for sector bets. Sectors that are under sustained selling pressure should be avoided, unless contrarian opportunities emerge. 

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