'FIIs Aren’t In Rush To Return India' - Who Will Keep Markets Afloat? Expert Answers

Amid global uncertainty, foreign institutional investors (FIIs) are treading carefully—and India, despite its promising outlook, isn’t their top priority right now. 

In his latest opinion piece, Anand K Rathi, Co-Founder of MIRA Money outlines the global mindset of institutional investors, explaining why India may have to rely on domestic investors for now.  

“FIIs aren’t in a rush to return to India — at least, not yet," Rathi asserted. 

In the absence of strong FII flows, domestic participation becomes key, "Which means — for now — Indian markets will need to rely more on domestic retail participation to stay buoyant," he said. 

What Market Expert Said

Rathi begins by setting the scene from the point of view of a US-based investor, "Let’s say you’re an institutional investor based in the US. You've got capital to deploy — but in today’s world, where do you put your money?"

He warns that the outlook for the US and global economies remains shaky, "The US economy could slow down. And thanks to the ripple effect, so could much of the world."

Tariffs, Inflation, Fed Bind

Further complicating the situation is inflation, which may be pushed higher by the recent tariff escalation. "Inflation in the US might rise further due to tariffs."

This, in turn, could restrict the Federal Reserve’s ability to stimulate growth, "The Fed could be caught in a bind — unable to cut rates easily."

Investors aren’t finding comfort in US markets either, "US equity markets, while not prohibitively expensive, aren’t cheap either."

Considering alternatives, Rathi highlights long-term US bonds, "You could play it safe and park your money in US long-term bonds. They’re offering around 4% — not bad. But with inflation running hot, your real returns could end up disappointingly low. And your investors? They want more."

Even US equities don’t look like an easy bet, "But with growth slowing and valuations not quite correcting, it’s a tricky call. Will the returns justify the risk? You're not entirely sure."

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India On Radar

This forces investors to look globally for better opportunities, "So, you begin to scan the globe — looking for markets that could offer better risk-adjusted returns. And that’s when India starts to flash on your radar."

India might seem like a strong candidate, but risk sentiment is still a barrier, "India looks promising. But here's the catch: for FIIs to shift capital meaningfully into emerging markets like India, they need to put on their RISK ON hat. And in the current environment, that’s unlikely to happen anytime soon."

Domestic Investors To Rescue

Worse, Rathi cautions that India could even see outflows if US economic indicators strengthen further, “If FIIs believe the US dollar will continue to strengthen or that US treasury yields are heading even higher, they might pull money out of India. That could be a headwind for Indian equities.”

Notably, foreign institutional investors (FIIs) sold equities worth Rs 4,994.24 crore on Tuesday, while domestic institutional investors (DIIs) bought equities worth Rs 3,097.24 crore, according to exchange data.