FII Sentiment Turning Favourable Towards Indian Equities, Says Raamdeo Agrawal
Foreign portfolio investor sentiment is showing signs of shifting in favour of Indian equities following a prolonged period of heavy capital outflows, according to Raamdeo Agrawal, Chairman of Motilal Oswal. Speaking on the sidelines of the ninth edition of the Motilal Oswal Business Impact Conference (MOBIC) 2026 in Mumbai, Agrawal noted that domestic stock markets appear to be in oversold territory following substantial foreign capital exits over the past two years.
What Happened
Foreign institutional investors (FIIs) have been net sellers in the Indian equity landscape for much of the past two years, with significant capital leaving the domestic market during the current year. However, market trends over the past week indicate a potential reversal, with foreign investors beginning to view India more constructively.
Agrawal explained that several factors drove previous capital outflows, including high domestic equity valuations, superior performance in competing international markets, and the absence of a dedicated artificial intelligence investment theme in India. Furthermore, ongoing geopolitical tensions have impacted India’s foreign exchange position by keeping global crude oil prices elevated.
Key Highlights
- Shift in FII Sentiment: Foreign institutional investors are starting to look at India more favourably after sustained selling over two years.
- Oversold Status: Domestic equities are likely in an oversold position due to heavy cumulative capital outflows.
- Drivers of Outflows: Exits were prompted by rich valuations in India, outperformance in global markets, lack of an AI investment theme, and geopolitical pressure on oil prices.
- Resilient Domestic Economy: Internal economic activity remains buoyant, backed by solid automobile sales, healthy GST collections, and credit growth of roughly 17 to 18 percent.
- Monetary Stance: The Reserve Bank of India is anticipated to align with the US Federal Reserve by maintaining a pause on interest rates, though credit expansion may need moderation to keep short-term inflation under control.
Why This Matters
The potential stabilization of foreign investor flows comes alongside resilient domestic economic fundamentals. Although the foreign exchange environment remains uncertain due to elevated oil prices and geopolitical risks, internal demand drivers—evidenced by healthy GST collections, strong automobile sales, and expanded credit flow—continue to support economic expansion.
Credit growth has increased from 9-10 percent last year to approximately 17-18 percent currently. Agrawal noted that policymakers may need to moderate this pace of credit expansion to manage potential short-term inflationary pressure.
What to Watch Next
Market participants will observe whether recent net foreign inflows signal a lasting trend or temporary market adjustment. External variables, such as geopolitical events in the Middle East—specifically developments concerning Iran—and movements in international crude oil prices, will remain critical factors.
On the domestic front, key factors include upcoming central bank communications on interest rates and potential regulatory steps to regulate credit growth to manage inflation.
Frequently Asked Questions
Why did foreign institutional investors sell Indian equities over recent years?
Foreign portfolio capital exited due to high domestic market valuations, stronger equity performance in other global regions, the lack of a prominent artificial intelligence investment theme in India, and elevated oil prices resulting from geopolitical conflicts.
What indicators demonstrate the strength of the domestic economy?
Strong automobile sales, robust Goods and Services Tax (GST) collections, and commercial credit growth running at 17 to 18 percent highlight the current strength of the domestic economy.
What is expected regarding monetary policy and interest rates?
Raamdeo Agrawal expressed expectations that the Reserve Bank of India will mirror the US Federal Reserve’s trajectory by keeping policy rates on pause, while cautioning that rapid credit growth may require moderation to manage short-term inflation.
Source: ANI