India Back on the FII Radar: Momentum or Mirage?

Over the past year, the Indian equity market has found itself lagging global peers, a rare and sobering phase for investors accustomed to India’s outperformance. Both in local currency and dollar terms, the returns have been underwhelming. While the Nifty has managed only single-digit gains in local currency, several emerging markets have sprinted ahead. The Hang Seng Index in Hong Kong has soared 34.7 per cent, while Japan’s Nikkei 225, a developed market index, has delivered 26.6 per cent returns. When viewed in U.S. dollar terms, India’s performance looks even weaker. Over the last one-year, Indian equities have effectively generated no returns, whereas China, Brazil, and Japan have advanced by 30, 16, and 26 per cent, respectively.[EasyDNNnews:PaidContentStart]

However, there are finally signs that the tide may be turning. In the past month, Indian equities have climbed close to six per cent in both rupee and dollar terms, a clear shift in momentum. After three months of relentless outflows, foreign institutional investors (FIIs) have once again turned net buyers in the month of October. The mood, it seems, is gradually changing from caution to curiosity, and from indifference to interest. Several cyclical and structural factors are aligning to make the Indian story appealing once again for foreign investors.

To begin with, India’s macroeconomic fundamentals remain remarkably strong amid global uncertainty. The economy continues to rank among the fastest growing in the world, with GDP expected to expand around 6.4 per cent annually over the next two years. Inflation looks benign and I believe will remain manageable. The rupee has stabilised after last year’s sharp depreciation, especially when compared with other emerging-market currencies that continue to face volatility. On the fiscal side, the government has chosen to sustain its capital expenditure push rather than cut back, a signal of long-term commitment to infrastructure and capacity creation. Recent policy initiatives, such as GST rationalisation, are also likely to stimulate demand across sectors by simplifying compliance and boosting consumption.

On the corporate front, India Inc is displaying improving health and resilience. The corporate profit-to-GDP ratio for the Nifty 500 companies stood at 4.7 per cent in FY25, the highest in 17 years. This revival in profitability underscores the improving efficiency and balance-sheet discipline across sectors. These are precisely the anchors that global investors look for, robust growth, stable currency, earnings visibility, and quality governance.

Another factor supporting renewed foreign interest is the valuation reset. After a year of underperformance and rupee weakness, Indian equities no longer appear excessively priced. The valuation premium that India used to command over other emerging markets has narrowed, making the risk-reward profile more balanced. With an average return on equity (ROE) of about 15 per cent, compared to China’s 10 per cent, India continues to offer attractive fundamentals. This combination of improving earnings, stable currency, and reasonable valuations makes it difficult for global money managers to ignore.

I believe FIIs will increasingly view India through a more favourable lens in the coming quarters. A strong earnings recovery seems likely over the next one to two quarters, supported by resilient domestic demand and operational efficiency across sectors. The global backdrop too appears supportive, with interest rates stabilising and talk of potential rate cuts gathering momentum. Lower global rates tend to revive risk appetite and liquidity for emerging markets.

If India can sustain its macro stability and corporate earnings momentum, the coming quarters could mark the beginning of a more sustained FII inflow cycle. The stage appears set, all that’s needed now is consistency in performance to turn foreign curiosity into lasting conviction.

Do share your feedback with us at [email protected]

RAJESH V PADODE
Managing Director & Editor

[EasyDNNnews:PaidContentEnd] [EasyDNNnews:UnPaidContentStart]

[EasyDNNnews:UnPaidContentEnd]