Global AI-related stocks under pressure, India may again attract FII flows
New Delhi, May 31
Amid concerns surrounding the valuations of AI-related stocks and the concentration risk involved in investing in a few stocks in this segment, FII flows into this segment might decline and India may again start attracting FII flows, according to analysts.
Total FII selling stood at Rs 32,963 crore (up to May 30), taking the total selling for 2026, so far, to Rs 224,932 crore. This year, so far, FIIs have invested Rs 15,497 crore through the primary market.
Poor earnings growth in India, much superior earnings growth in countries like the US, Japan, South Korea and Taiwan and the strong AI-related trade in these countries, particularly in South Korea and Taiwan, contributed significantly to the FII selling in India and moving the money to the above mentioned markets, according to Dr VK Vijayakumar, Chief Investment Strategist, Geojit Investments Ltd.
Another major factor responsible for the FII selling has been the steady depreciation in rupee.
Rupee, which was about 90 to the dollar at the beginning of this year, steadily depreciated to 96.96 recently. But during the last couple of days, rupee has been appreciating; rupee closed at Rs 95 to the dollar on Friday.
"The sharp decline in Brent crude to $92 contributed significantly to the stability in the rupee. This stability in the rupee can restrain the FII flight from India," the market watcher said.
The primary catalyst for this large-scale FII withdrawal has been escalating geopolitical tensions in West Asia, which have heightened global uncertainty and risk aversion. This has been compounded by several macroeconomic pressures such as weakening Indian Rupee, higher crude prices.
Looking ahead, institutional flows in the coming month are likely to remain sensitive to developments around US-Iran tensions, oil-price trajectories and RBI monetary policy outcome and progress of the monsoon, said market experts.
— IANS
Reader Comments
Honestly, I'm cautious about this AI hype. These stocks are overvalued globally. India's strong fundamentals in banking, IT services, and manufacturing make it a safer bet. FIIs will eventually realize that chasing AI is like chasing a mirage. Jai Ho India! 🇮🇳
Good analysis but the article misses one key point: US-Iran tensions could spike again if something happens in West Asia. That's the elephant in the room. Rupee at 95 is stable, but one missile strike and it'll be back to 97-98. Need to be ready for volatility.
I've been invested in Indian equities for 5 years and this cycle of FII selling and buying is normal. The fundamentals haven't changed - growing middle class, digital adoption, manufacturing push under PLI schemes. But I do worry about the valuations being too high for some Indian stocks.
The rupee depreciation point is spot on. 90 to 96 in 5 months! That's a 6.6% loss for foreigners. No wonder they fled. Now with oil at $92 and rupee strengthening again, it makes sense for them to return. But I think India needs to focus on export competitiveness too. Make in India!
As someone who trades both Indian and US markets, the AI trade has been a bubble in some segments. Nvidia and its satellites have run too much. India's broader market offers more diversified growth. But the RBI needs to manage inflation better to keep FIIs interested long-term.
We welcome thoughtful discussions from our readers. Please keep comments respectful and on-topic.