Daijiworld Media Network - New Delhi
New Delhi, May 24: Stability in the Indian rupee and stronger corporate earnings growth could be crucial in bringing foreign institutional investors (FIIs) back to Indian equity markets, market analysts said on Sunday.
FIIs have remained net sellers in recent months, with outflows reaching Rs 30,374 crore so far in May. This has pushed total FII selling in 2026 to Rs 222,343 crore, significantly higher than the Rs 166,283 crore recorded in 2025.
According to market experts, sustained foreign selling reflects a mix of global and domestic factors, including weak earnings growth in India, stronger returns in other markets, elevated US bond yields, and continued depreciation pressure on the rupee.
Commenting on the trend, VK Vijayakumar said FIIs are likely to return as buyers only when key macroeconomic conditions shift in India’s favour.
He noted that improving corporate earnings, better global positioning of Indian markets, and stabilisation in currency movements would be essential triggers for a reversal in foreign investment flows.
Despite heavy selling in large-cap stocks, FIIs have continued to show interest in small and mid-cap segments, where growth prospects remain relatively stronger. Analysts say this indicates that earnings visibility remains the primary driver of investment decisions.
At the same time, domestic institutional investors (DIIs) have continued to provide strong support to markets, remaining net buyers throughout the previous trading week with inflows of around Rs 16,950 crore.
Market indices have also remained volatile, with sharp fluctuations as investors respond to mixed economic signals and global uncertainty.
Meanwhile, brokerage firm Jefferies observed that recent weakness in the rupee may be driven less by trade deficits or oil prices and more by structural capital flows. It noted that sustained domestic inflows into equities through systematic investment plans (SIPs), combined with heavy foreign selling, are contributing to pressure on the currency.
Analysts added that a sustained recovery in earnings growth, along with currency stability, will be key to restoring foreign investor confidence in Indian equity markets.