Stable Rupee, Stronger Corporate Earnings Key to Bringing FIIs Back: Analysts

New Delhi- A stable rupee and improving corporate earnings outlook could help attract foreign institutional investors (FIIs) back to Indian equity markets, market experts said on Sunday.

According to analysts, sustained foreign selling in Indian equities has been driven by a combination of weak earnings growth, attractive opportunities in overseas markets, elevated global bond yields and continued pressure on the rupee.

FIIs have sold equities worth Rs 30,374 crore so far in May, taking their total outflow in 2026 to Rs 2,22,343 crore. This has already surpassed the full-year FII sell figure of Rs 1,66,283 crore recorded in 2025.

VK Vijayakumar, Chief Investment Strategist at Geojit Investments Ltd., said the key question now is when foreign investors will return as buyers in the Indian market.

“It is important to understand the principal reasons behind this sustained selling,” he said.

According to him, the main reasons include sluggish earnings growth in India, comparatively better earnings prospects in global markets, high bond yields — especially in the US — and the depreciation of the rupee.

“These factors, at least some of them, should change in India’s favour for the FIIs to turn buyers in India,” Vijayakumar noted.

Despite heavy selling in large-cap stocks, FIIs have continued to invest in small and mid-cap shares, where growth potential and earnings visibility remain strong. Analysts believe this underlines the importance of earnings growth in driving foreign investment decisions.

Market experts also pointed out that fourth-quarter corporate earnings have shown early signs of recovery, which could improve investor sentiment going forward.

Meanwhile, domestic institutional investors (DIIs) continued to support the markets, remaining net buyers throughout the previous trading week with cumulative inflows of Rs 16,950 crore.

Indian benchmark indices witnessed volatile trading during the week, fluctuating between gains and losses amid mixed sectoral trends and uncertainty in global markets.

Global brokerage Jefferies, in a recent note, suggested that the rupee’s weakness may be linked more to sustained domestic equity buying through SIPs and continued foreign selling, rather than crude oil prices or the current account deficit.

The brokerage said strong domestic inflows alongside heavy FII selling have emerged as a major factor weighing on the Indian currency.

With inputs from IANS