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FPI Inflows Bounce Back: Why India's Market Outlook Remains Robust

Foreign portfolio investor inflows into Indian equities are showing signs of recovery. A report from Emkay Global suggests the current weakness is just a temporary phase, with the long-term outlook remaining strong. It highlights that domestic institutional investors now provide a crucial buffer against market volatility. The analysis expects the share of equities in household savings to grow significantly over the coming years.

Key Points: FPI Inflows Rebound as Long-Term India Market Outlook Stays Strong

  • FPI inflows are bouncing back but may pause until the rupee stabilizes for 1-2 months
  • Domestic institutional investors now own more than FPIs, buffering market volatility
  • Equity share in household savings is expected to rise to 45% over the next decade
  • The surge in gold's share of savings is not seen impacting future equity flows
2 min read

FPI inflows bounce back, long-term outlook for Indian markets robust

Foreign investor inflows are recovering in Indian equities. A new report highlights a robust long-term outlook despite short-term currency volatility and strong domestic flows.

"We believe this is a temporary wobble. The long-term outlook for domestic flows is robust, in our view. - Emkay Global Financial Services report"

Mumbai, Dec 26

The foreign investors' inflows in the Indian domestic equities is bouncing back and the long-term outlook for markets is robust, a report showed on Friday.

The weakness in the rupee may keep foreign portfolio investors (FPIs) away, with a return expected only after the currency stabilises for an extended spell (1-2 months), according to the note by Emkay Global Financial Services.

"However, we believe this is a temporary wobble. The long-term outlook for domestic flows is robust, in our view," it added.

Low nominal interest and withdrawal of tax benefits to debt mutual funds have made fixed income an unattractive option for long-term savers. Unless there is a deep and extended market correction (unlikely, in our view), we expect continued and sustained domestic flows into equities, the note explained.

The share of equities in household savings consolidated in the last 12 months after a 9-year surge from 17 per cent to 30 per cent (between March 2016 and September 2024).

The consolidation was largely attributed to market action, with the BSE-500 correcting 6.6 per cent over September 2024-September 2025, though flows remained robust during this period.

"We see this as a blip and expect the share to rise to 45 per cent over the next 10Y, with month-to-month (M2M) impact playing a major role. This change in trend is important for India's market stability - DIIs already have higher ownership than FPIs and have acted as a buffer against FPI selling and consequent market volatility," said the report.

"Our analysis of FPI and DII aggregate portfolios suggests that FPIs continue to be large-cap heavy with a high overweight (OW) on Financials," it added.

The share of gold in household savings has risen by 855 bps in the last 12 months to 45.6 per cent, largely due to the month-to-month gains.

"We do not see a major impact, as data does not suggest any major consumption boost from the resultant wealth effect. We also do not see an impact on incremental equity flows. As such, there is no historic correlation between gold prices and equities flows," the report said.

- IANS

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Reader Comments

P
Priya S
Good analysis, but I'm a bit concerned about the rupee weakness mentioned. For the common investor, a volatile currency can eat into returns even if the market goes up. Hope the RBI has a plan to manage this phase.
R
Rohit P
The shift in household savings from 17% to 30% in equities is a silent revolution. My father only trusted FDs and gold. Now, with low interest rates, even he's started a small SIP. This domestic money is our real strength.
S
Sarah B
Interesting read. The point about gold's share rising to 45.6% is fascinating. In many Indian families, buying gold is more of a cultural habit than an investment strategy. Good to know the report doesn't see it impacting equity flows.
V
Vikram M
"Temporary wobble" – I like that confidence. Markets will have corrections, but the underlying story of India's growth and increasing financialization of savings is strong. Time to stay invested and ignore the short-term noise.
K
Karthik V
While the report is optimistic, a note of caution for retail investors: don't get carried away. The prediction of equities rising to 45% of household savings over 10 years is a projection, not a guarantee. Always diversify and invest according to your risk profile.

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