Archive · 25 Sep 2026
When Will FIIs Return? Bernstein Sees Modest Near-Term Buying
Foreign institutional investors are large overseas funds that buy shares in India.
Bernstein thinks some of these funds may return over the next year.
However, it does not expect a large and lasting return right away.
The brokerage says India must create companies that can compete successfully around the world.
It highlights semiconductors, batteries, energy storage, space, defence and deep tech as possible areas of future strength.
India still needs more investment and scale in several of these industries.
A weaker rupee can make Indian investments worth less when measured in dollars.
High prices for Indian shares and limited trading in smaller companies can also discourage foreign funds.
Lower oil prices and better earnings could bring some money back temporarily.
Bernstein expects foreign institutional investor flows to be flat to modestly positive over the next 12 months.
The brokerage says sustained foreign investment requires globally competitive Indian businesses, not just stronger domestic growth.
Semiconductors, batteries, energy storage, space, defence and deep tech are identified as potential long-term growth areas.
Currency weakness, high relative valuations and limited small-company liquidity continue to weigh on foreign investment decisions.
Lower oil prices, faster earnings growth and improved macroeconomic conditions could support a temporary return of foreign capital.
- Who
- Bernstein and foreign institutional investors considering investments in Indian equities.
- What
- Bernstein expects FII flows to be flat to modestly positive over the next 12 months, while saying a sustained revival depends on globally competitive Indian industries.
- When
- Over the next 12 months; the analysis also examines historical flow and market data across several periods.
- Where
- Indian equities and the wider Indian economy.
- Why
- Near-term flows could improve if oil prices, earnings and macroeconomic conditions improve, but long-term allocations require stronger companies, better scale and greater global competitiveness.
Temporary Return
Structural Revival
Foreign flows over the next year
Temporary Return
Improving conditions such as lower oil prices, faster earnings growth and better macroeconomic conditions could bring foreign capital back temporarily.
Structural Revival
A temporary return would not necessarily indicate that overseas funds have resumed large, long-term allocations to India.
What attracts foreign investors
Temporary Return
Improved currency stability, earnings expectations and market conditions could support near-term buying.
Structural Revival
Bernstein says the more important issue is whether India can build globally competitive companies and industries.
Emerging industries
Temporary Return
Space, defence, semiconductors and deep tech show early signs of capabilities that could eventually attract global capital.
Structural Revival
Most of these industries are currently too small to materially affect capital allocation, and India has struggled to scale areas such as EVs, semiconductors and solar.
- Near-term flow view
- Bernstein expects FII flows to be flat to modestly positive over the next 12 months.
- FII flows over the last two years
- FIIs withdrew $40 billion from Indian equities, according to Bernstein.
- Ten-year comparison
- FIIs net invested $4 billion in Indian equities over the past decade, compared with $300 billion from domestic institutional investors.
- Currency relationship
- The correlation between FII flows and rupee movements against the US dollar reached 72.9% in the latest period examined.
- Relative valuation
- India’s average relative valuation rose from 109% between June 2005 and December 2010 to 162% between December 2023 and September 2026.
- Potential long-term sectors
- Bernstein identified advanced semiconductor manufacturing, batteries, energy storage, space, defence and deep-tech innovation.
- Key constraints
- Small and mid-cap companies often have low free floats, limited liquidity and sparse research coverage.