Rupee stabilisation, better earnings growth to bring FIIs back to Indian markets
New Delhi, May 24
Stabilisation of the rupee and improvement in the prospects of earnings growth can bring foreign institutional investors back to Indian stock markets, analysts said on Sunday.
The FII selling stood at Rs 30,374 crore (in May to date), taking the total FII selling in 2026, so far, to Rs 222,343 crore.
This is higher than the total sell figure of Rs 166,283 crore for 2025.
"The important question is: when will the FIIs turn buyers in India. It is important to understand the principal reasons behind this sustained selling," said Dr VK Vijayakumar, Chief Investment Strategist, Geojit Investments Ltd.
The factors are poor earnings growth in India, much better earnings growth and prospects for earnings growth in other markets, high bond yields, particularly in the US, and rupee depreciation.
"These factors, at least some of them, should change in India's favour for the FIIs to turn buyers in India," said the analyst.
Even while selling largecaps, FIIs have been buying in SMIDs (small and mid-cap equities) where growth and earnings prospects are good. This means earnings is the primary factor.
"An important takeaway from Q4 results is that there are indications of earnings recovery," the analyst said.
Domestic institutional investors (DIIs) remained net buyer in all the five-trading session during last week, with net inflow of Rs 16,950 crore.
Benchmark indices traded choppy with high volatility swinging between gains and losses, as investors navigated heightened market uncertainty and mixed cues across sectors.
Meanwhile, the rupee's recent weakness may have less to do with oil prices or the current account deficit (CAD), and more to do with domestic investors relentlessly buying equities through SIPs, according to Jefferies.
In a note, the global brokerage said heavy foreign selling in Indian equities, combined with strong domestic inflows, has emerged as the key driver behind pressure on the rupee.
— IANS
Reader Comments
The Jefferies note about SIPs driving rupee weakness is interesting. Domestic investors pouring money into equities through SIPs while FIIs sell - that's a unique dynamic. But let's not forget, India's fundamentals are still strong compared to other emerging markets. Patience will pay off.
Honestly, FII selling of Rs 2.22 lakh crore is scary. But I've been investing systematically for 3 years and not panicking - my SIPs are buying more units now. This is the time to stay invested, not run away. Earnings recovery will happen, it's cyclical. 📈
As someone who works in global equities, the comparison with other markets is valid. U.S. bond yields are high, and Indian earnings growth has been sluggish. The Q4 results show glimmers of recovery, but we need consistent data. Rupee stabilisation is also crucial - if it weakens further, FIIs will stay away.
Analysts keep predicting FII return, but we've been hearing this for months. Meanwhile, small and mid-caps are still getting FII interest - that's a positive sign. The market is volatile, but if you're a long-term investor, this is just noise. Stay the course! 😊
The SIP-driven rupee weakness point is eye-opening. Domestic investors are literally supporting the market while FIIs flee. But let's be honest - earnings recovery needs to be faster. Q4 results showed some improvement, but not enough to turn the tide. Government needs to boost consumption and capex.
We welcome thoughtful discussions from our readers. Please keep comments respectful and on-topic.