Are FPI Inflows Recovering? What's the Long-Term Outlook for Indian Markets?
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Synopsis
A recent report unveils a rebound in foreign portfolio investor inflows in Indian markets, suggesting a robust long-term perspective despite current currency challenges. This article explores the factors influencing these trends and the implications for domestic equity investments.
Key Takeaways
- FPI inflows are recovering into Indian equities.
- The long-term market outlook remains positive.
- Low interest rates make equities more attractive than fixed income.
- Household equity savings have risen significantly.
- DIIs are acting as a stabilizing force in the market.
Mumbai, Dec 26 (NationPress) Inflows from foreign investors into Indian domestic equities are experiencing a rebound, signaling a strong long-term outlook for the markets, as revealed in a report released on Friday.
The depreciation of the rupee may deter foreign portfolio investors (FPIs), with a resurgence anticipated only after the currency stabilizes over a significant period (1-2 months), according to insights from Emkay Global Financial Services.
“Nonetheless, we perceive this as a fleeting disturbance. Our perspective indicates that the long-term outlook for domestic investments remains promising,” it stated.
With low nominal interest rates and the removal of tax benefits for debt mutual funds, fixed-income investments have become less appealing for long-term savers. Unless a substantial and prolonged market correction occurs (which we consider unlikely), we foresee ongoing and sustained domestic investment in equities, the report elucidated.
The proportion of equities within household savings has solidified over the past year, rising from 17 percent to 30 percent (between March 2016 and September 2024).
This consolidation is primarily attributed to market dynamics, with the BSE-500 index correcting by 6.6 percent from September 2024 to September 2025, yet inflows have remained strong during this timeframe.
“We regard this as a minor fluctuation and anticipate the share to escalate to 45 percent over the next decade, with month-to-month (M2M) effects playing a crucial role. This shift in trend is vital for the stability of India’s market – domestic institutional investors (DIIs) already possess greater ownership than FPIs and have served as a buffer against FPI sell-offs and related market volatility,” the report elaborated.
“Our evaluation of aggregate portfolios of FPIs and DIIs reveals that FPIs maintain a heavy concentration in large-cap stocks, particularly with a significant overweight in Financials,” it further noted.
Over the last 12 months, the share of gold in household savings has increased by 855 basis points to 45.6 percent, primarily due to month-to-month gains.
“We do not foresee a significant impact, as data does not indicate any substantial consumption uplift from the wealth effect. Additionally, we do not expect any effect on incremental equity flows. Historically, there has been no correlation between gold prices and equity flows,” the report concluded.
Point of View
We recognize the resilience of India's markets. The recent rebound in FPI inflows signifies a renewed confidence among investors. This aligns with our commitment to providing insightful analyses that reflect the dynamic nature of the financial landscape.
NationPress
26/12/2025
Frequently Asked Questions
What factors are influencing FPI inflows into Indian markets?
Factors such as currency stability, interest rates, and market corrections are influencing FPI inflows.
What is the long-term outlook for Indian equities?
The long-term outlook for Indian equities is considered robust, despite temporary fluctuations.
How have household savings in equities changed recently?
Household savings in equities have increased significantly, consolidating from 17 percent to 30 percent over the past 12 months.
What role do domestic institutional investors play?
Domestic institutional investors have become a buffer against FPI selling, enhancing market stability.
Is there a correlation between gold prices and equity flows?
Historically, there has been no significant correlation between gold prices and equity flows.
