Nifty gave zero return to FIIs in 4.5 years. Can India win again fleeing overseas traders?
FIIs have dumped Rs 1.6 lakh crore of Indian shares to date in calendar 12 months 2026, with March alone witnessing an unprecedented Rs 1.2 lakh crore in outflows because the Iran battle drags on. The Nifty Index, measured in US {dollars}, has circled again to September 2021 ranges giving 4.5 years of flat efficiency for dollar-based traders who as soon as flocked to India’s development story.
“That is 4.5 years of no returns for traders who spend money on India utilizing US Greenback (the FIIs),” notes Sahil Kapoor in DSP Mutual Fund‘s Netra report. “This can be a main worth froth removing mechanism and the identical mechanism by which shares method engaging valuations.”
Forex disaster compounds the ache
The rupee has turn out to be floor zero for overseas investor nervousness. Because the struggle erupted, India’s foreign money has depreciated roughly 4%, crashing to 95.30 in opposition to the greenback on March 30 earlier than RBI intervention triggered a short-squeeze that pulled it again.
“March witnessed huge promoting by FPIs to the tune of Rs 1.2 lakh crore. That is the most important ever month-to-month promoting by FIIs,” says Dr. VK Vijayakumar, Chief Funding Strategist at Geojit Investments Restricted. “Continuation of the struggle, crude once more spiking to above $100 stage, the regular decline within the rupee and appreciation of the greenback triggered this document promoting.”
Additionally Learn | Earnings downgrade alert: How $110 crude and Iran struggle are threatening India Inc’s double-digit dream
The Reserve Financial institution of India has stepped in forcefully, capping every day rupee positions of banks to $100 million within the deliverable section and directing them to cowl quick positions earlier than April 10. However Vijayakumar warns the underlying stress stays: “As long as crude worth stays elevated, rupee will proceed to be essentially weak.”Given how international brokerages are downgrading India, slashing Nifty targets and warning traders of earnings ache in FY27, it seems unlikely that FIIs will flock to Dalal Road anytime quickly.
BofA Securities has reduce its FY27 Nifty earnings development forecast to eight.5% year-on-year from 11% in early March, citing extended battle dangers and commodity worth spikes starting from 12-53%.
“We imagine markets are nonetheless not in a price zone,” BofA states bluntly. “Additionally on a relative foundation, Nifty remains to be costly vs EMs on valuations adjusted for development & on earnings vs bond yields: we therefore proceed to imagine India to Underperform EMs.”
Nomura echoes the bearish regional view, recommending traders rotate to Korea equities (down ~15% for the reason that struggle began) and MSCI China. “Given our baseline assumption that elevated oil/vitality costs and tech-cycle/AI capex momentum are more likely to proceed, we imagine that India equities would possibly wrestle to outperform within the regional context,” Nomura analysts write.
Given the backdrop of upper‑for‑longer oil costs, Goldman Sachs additionally turned cautious on Indian equities final month and even downgraded its stance to marketweight. The financial institution has slashed its 12‑month Nifty goal (to finish‑March 2027) to 25,900 from 29,300 beforehand.
Bernstein had additionally lowered Nifty’s year-end goal to 26,000 and flagged the danger of the headline index falling to as little as 19,000 within the worst case situation.
Additionally Learn | BofA cuts Nifty earnings goal to eight.5%, says market not in worth zone
The contrarian case: Is that this the underside?
But some market veterans see exactly these dismal circumstances as a possible turning level. The Nifty’s 12-month ahead P/E has compressed to 17x, near the pre-Covid (January 2015-20) common and a 12% low cost to the final 5 years, based on Jefferies. The index is down 12% year-to-date and flat over two years, bringing valuations to roughly one normal deviation beneath the 10-year common.
“If there’s a interval after the COVID crash when FPI and FDI flows can start to enhance once more, it’s round this zone,” argues Kapoor. “Traditionally, the most important overseas inflows into India have come when valuations had been low cost or at the least affordable. Not when optimism was highest.”
The DSP analyst highlights what overseas traders now see: extra affordable valuations, pockets of low cost high quality shares in massive liquid companies, and an Indian rupee close to one among its weakest actual efficient alternate fee ranges in years. Critically, lots of India’s macro stresses seem close to their peak—that means they’re extra doubtless priced in than ignored.
“We are likely to disregard imply reversion, which is the iron legislation of monetary markets, and settle for continuation and extrapolation,” Kapoor notes. “Given traders’ tendency to extrapolate, the market switches from believing in the future that it is the finish of the world to the following second pondering that income will develop fabulously without end.”
Vijayakumar helps this view: “Sustained promoting by the FIIs have made Indian market valuations truthful and in some segments engaging. However FII inflows can occur solely when there’s de-escalation on the struggle entrance main to say no in crude.”
Kapoor affords a crucial perspective typically misplaced in market narratives: “Fairness costs don’t transfer as a result of FIIs purchase. Like most traders, FIIs chase worth. They often don’t create developments.”
Jefferies calculates that even with 4-5% earnings cuts for March 2027, the market has already adjusted. On excessive assumptions of near-zero earnings development in FY27, the Nifty’s implied P/E is round 20x, which is the post-Covid common. With an 8% earnings downgrade to six% EPS development (the bottom since FY21), the implied a number of hits the 10-year common of 18.6x.
Whether or not overseas traders return anytime quickly hinges on elements largely past India’s management: de-escalation within the Center East, crude oil costs retreating from the $100-plus vary, and stabilization of the rupee. Till these dominoes fall, the four-and-a-half-year await greenback returns might lengthen even longer or mark the affected person accumulation zone that contrarians are betting on.
(Disclaimer: Suggestions, recommendations, views and opinions given by the specialists are their very own. These don’t signify the views of The Financial Occasions)
