There is no change in the stance of foreign institutional investors (FIIs) on Indian equities, even in the new year, when valuations of large caps are near their long-term average, and expectations of healthy Q3 earnings are high.
In the cash segment, FIIs have sold off Indian stocks worth over ₹8,400 crore so far in January. On a monthly scale, they have been selling Indian equities since July 2025. From July to December, they cumulatively sold off Indian stocks worth nearly ₹1.85 lakh crore.
According to estimates from brokerage firm Motilal Oswal Financial Services, FIIs saw the highest-ever equity outflows of $18.8 billion in the calendar year 2025.
The market sentiment is weak at this juncture amid renewed concerns over US tariffs and a delayed India-US trade deal despite several rounds of negotiations. In fact, there are concerns that US tariffs on Indian goods could be increased to as high as 500% if the “Sanctioning of Russia Act of 2025” comes into effect.
On January 7, Republican Senator Lindsey Graham claimed that US President Donald Trump had backed the Russia sanctions bill, which could raise US tariffs to at least 500% on countries that buy Russian oil.
Can healthy Q3 earnings attract FIIs to the Indian stock market?
Weak earnings of Indian corporates and premium valuations of the Indian stock market have been the major factors why FIIs have been selling Indian equities relentlessly since July last year.
Earnings growth of Indian corporates began to slow down in mid-2024 and continued through 2025.
However, US tariffs and currency weakness have also contributed to the selling by FIIs. While healthy earnings will be a major boost for the market and can potentially bring FIIs back to the Indian stock market, a trade deal between India and the US remains a critical factor that will influence currency movement and FIIs’ stance on India.
VK Vijayakumar, Chief Investment Strategist at Geojit Investments, expects Q3 earnings to be good, but it may not be sufficient to bring FIIs back to India in a systematic manner.
“The economy badly needs an India-US trade deal. If the trade agreement doesn’t happen, that will impact India’s macroeconomic stability through a wider trade deficit, a weakening currency, and further capital outflows. The expected higher corporate earnings in FY27 will depend on robust economic growth, which, in turn, requires a trade agreement,” said Vijayakumar.
Some experts believe FIIs may already be discounting an India–US trade deal, expecting the two countries to eventually finalise an agreement, given India’s importance as a key strategic partner of the US.
Therefore, FIIs will likely focus more on the earnings growth.
Shrikant Chouhan, the head of equity research at Kotak Securities, believes that improved earnings may lead to a change in the stance of FIIs. However, sustained FII inflows would be possible if the US markets underperform and bond yields decline.
“If earnings improve, we can expect a more positive stance from FIIs. Strong and healthy earnings growth in India can also attract FII inflows, even in the presence of ongoing trade deal uncertainties,” said Chouhan.
“For sustained and meaningful inflows, we would ideally need underperformance in US markets along with a decline in bond yields, as lower yields tend to redirect global capital towards emerging markets,” Chouhan said.
Ajit Mishra, SVP of Research at Religare Broking, also has similar views.
“Healthy Q3 earnings could meaningfully improve India’s appeal to FIIs even if the India–US trade deal remains delayed,” said Mishra.
Mishra pointed out that India’s valuation premium to emerging markets is currently below its historical average, while relative underperformance over the past year has tempered positioning. This creates a potential counter-opportunity for global investors.
“Strong Q3 earnings, led by financials, industrials and consumption, could trigger earnings upgrades and a re-rating. In a global environment where capital is selective, improving earnings visibility and return ratios may outweigh near-term trade uncertainty and drive incremental FII inflows into India,” Mishra said.
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