Commenting on current trends, Vinod Nair, head of research at Geojit Investments, said selling by foreign investors has been subdued this week, supported by stronger second-quarter earnings, easing inflation and optimism around India-US trade talks. “Bullish sentiment continued throughout the week. A moderation in FII selling – driven by expectations of earnings improvements in the second half of FY26 – also helped valuations. However, markets turned volatile on Friday amid weak global cues and rising concerns over possible delays in India-US trade talks,” he said.Citing EPFR data, Ross Maxwell, Global Strategy Lead at VT Markets, said foreign investors are still not returning to India in any meaningful size, despite flows into emerging market funds.
“Sentiment among foreign investors has clearly improved from the risk-off sentiment earlier this year, but flows remain preliminary and tactical and do not indicate an overall structural shift. In the coming weeks we can monitor near-term signals to try to understand whether financial institutions are preparing for a more fundamental shift,” he said.
FIIs bought domestic equities worth Rs 14,610 crore in October. In Q3CY25, FIIs sold scrips worth Rs 76,619 crore, while in the April-June quarter, foreign purchases amounted to Rs 38,673 crore. There was a significant outflow at the beginning of the year as FII’s sell-off between January and March was a whopping Rs 1,16,574 crore.
What keeps FIIs away from Indian shores?
According to Maxwell, financial institutions are looking for clarity on earnings and a valuation reset, although India remains strong from a macro perspective. Valuations remain a sticking point for financial institutions, despite some correction in recent months.
“It remains a sticking point for global investors who are comparing India not only with emerging Asia, but also with cheaper options in Korea and Taiwan.
Many FIIs expect a valuation reset over time rather than in the form of prices, meaning they want earnings growth to catch up before meaningfully increasing exposure. The December to March earnings cycle will therefore be crucial,” said the VT Markets expert.
Smart PAT growth remains subdued at 6.8% YoY in Q2FY26, driven by weak performance in banking, IT services, FMCG and energy, ElaraCapital said in a note. For FY26E, the Nifty EPS is expected to grow at a moderate 3%, providing a low base for a stronger recovery in FY27, the report said, adding that the Nifty EPS is likely to move from Rs 1,047 in FY25 to Rs 1,083 in FY26E and further to Rs 1,256 in FY27E, registering a growth of 16%.
A few names like Tata Steel, JSW Steel, Bharti Airtel, Adani Enterprises, Adani Ports, Ultratech Cement and Titan stood out with strong earnings growth of over 30% year-on-year.
How do you recognize the FII vote?
Maxwell suggests three trends to spot:
- Year-end portfolio rebalancing by global emerging market funds often provides the first clues about changing sector preferences, Maxwell said. He highlighted that a revival in Indian ETF flows, increased futures positioning and stabilizing currency hedges would indicate that financial institutions are gearing up to re-enter the Indian markets – likely using buy-the-dip strategies.
- Flows into broader emerging funds will also provide clues, as India tends to receive disproportionate allocations when global emerging sentiment turns positive, this analyst pointed out.
- Another signal would be a fall in US interest rates or a decline in year-end volatility, he added.
(Disclaimer: Recommendations, suggestions, views and opinions expressed by the experts are their own. These do not represent the views of the Economic Times)
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