Kolkata: Foreign investors have turned net sellers in two successive financial years FY25 and FY26. While in the first year, the FPI outflow was Rs 1.27 lakh crore, the second year witnessed as much as Rs 1.76 lakh crore — a more than 38% jump in FY26 compared to the outflow in FY25. On the other hand, domestic institutional investors pumped in as much as Rs 8.31 lakh crore, which cushioned the impact of the record FPI outflow.
Will the selloff continue?
This is the real question on the mind of many investors and analysts. A few analysts have told the media that considering the headwinds in the global markets, thanks to the uncertainty in West Asia, a clearer picture could emerge only in the second half of the new financial year. The indication is clear: in the first half of FY27, FPI outflow might continue.
Too many factors generating headwinds
“Markets are full of noise due to events like wars, tariffs and commodity price swings. These create fear, but they are largely short-term in nature,” Raamdeo Agrawal, chairman and co-founder of Motilal Oswal Financial Services, said a few days ago.
While the crude and natural gas supply disruptions are one factor, another big determinant is the falling value of the Indian currency against the US dollar. The combined impact is threatening crucial indicators such as the current account deficit, inflation concerns and a deceleration of the rate of GDP growth. Many companies are putting capital mobilisation plans on the backburner and all this can impede capital expenditure plans of India Inc. The US Fed, too, did not bring down the key interest rates in response to inflationary pressures in that economy.
Prabhakar Kudva, director and principal officer – Portfolio Management Service, Samvitti Capital, referred to three factors as quoted in a media report. “First, India’s earnings growth decelerated meaningfully. Second, the long-term capital gains (LTCG) tax hike made India less attractive on a post-tax return basis. Third, other Asian markets like Korea and Taiwan offered better near-term returns due to AI-related tailwinds,” he was quoted as saying.
What FY27 can hold for the FPIs
One major cloud in the horizon could be corporate earnings, which can be impacted by the US-Iran war. The cost of inputs are going up for a number of industries and this can impact both sales and profits, indicated analysts. Analysts also said that many investors are factoring in Nifty 50 earnings growth of 12-14% in FY27. But there is a rider: crude oil prices. Analysts also point out that is crude prices remain in the $85-$90 range over the next few months, it could pull down growth expectations. Incidentally, the average price of benchmark Brent crude was about $70 a barrel on Feb 27, a day before the first missiles flew in West Asia.