Foreign investors blow the stock market’s senses
The process of selling foreign investors from the Indian stock market continues. Foreign portfolio investors are not taking the name of trade tension with the US, weak results of companies in the first quarter and fall in the price of rupee. According to a report by Mint, in 2025, foreign institutional investors (FIIs) have withdrawn a huge amount of $ 12.8 billion from the Indian stock market. Such a huge withdrawal since the beginning of the year indicates that the trust of foreign investors has been shaken. The economic foundation in India remains strong, but the earnings of companies are not getting up to the expectations. This is the reason that investors are now eyeing the markets where they are seeing more profits and low risk.
Earning speed slow but shares expensive
According to the report of Elara Capital, the Indian market earnings (EPS growth) is weak on global standards. The Nifty Index showed an annual dollar based EPS to just 4%, which is far below the average in global markets. Despite this, India’s forward P/E ratio is at 19.4x, which is above its long -term average of 17.1x.
Not only this, the average P/E of MSCI emerging market index (EM) is just 12.6X, which is much cheaper than India. That is, investors have to pay more prices in India despite less earnings – this imbalance is bothering them.
Backward India compared to Asian markets
While India’s earnings are getting sluggish, markets like South Korea and Taiwan are attracting investors. South Korea has given EPS growth of 45% and Taiwan 20%. On the other hand, China is also gaining momentum, recovering from its long decline. If we look at India’s earnings, then in the last three months, the estimate of investors has fallen by 1.8%. On the contrary, the estimate of earnings in China has increased by 3.7% and MSCI EM has also seen a 0.2% increase.
America’s tariff policy is also affected
Not only the domestic factor, but also the trade tariff policy of America has affected the market. Due to these policies, the pressure on Indian companies has increased and due to uncertainty, foreign investors have turned funds to other safe markets.
Will foreign investors return?
G Chokkalingam, who is an experienced research specialist, believes that companies’ earnings may be improved in the quarter of October to December. If this happens, then the return of foreign investors can begin from there.
At the same time, Amar Ranu of Anand Rathi shares says that if the companies’ earnings remain strong, the policies of the government remain clean and stable, and the valuation of the market is at the right level for investment, then India can become a favorite market for FII (foreign institutional investors) again.
Apart from this, if the US Federal Reserve adopts a soft stance on interest rates and the dollar is slightly weak, then it can also increase investment towards emerging markets like India. The situation is definitely a bit challenging, but experts believe that if some necessary factors go in the right direction, then it is possible to return to foreign investors.
1- Better earning most important condition- Elara Capital says that if dollar-based EPS growth of Indian companies reaches 12-14% in the next few years, especially in areas such as financial, consumer goods, autos and infrastructure, foreign investors can turn to the Indian market again, even if the valuation is high.
2- Interest rate cuts will provide support- The possibility of cutting interest rates by the Reserve Bank can increase the liquidity in the market, which can provide relief to investors.
3– Monsoon good, expectation from rural demand- This time the monsoon has been good, due to which the demand in the rural economy is likely to increase. Its effect can be seen on the earnings of consumer and auto sector.
4- Government incentive needs- If the government improves the GST structure and gives a concession of more than ₹ 50,000 crore, then it will give great support to the business environment and strengthen the trust of investors.
5- Softening of oil prices in favor of India- If oil prices come down, it will directly benefit on inflation and current account deficit, which will strengthen India’s economic condition.