‘FIIs optimistic on India in the medium term despite being net sellers’

Foreign Institutional Investors (FII) are positive about India’s outlook in the next three to five years due to a relatively stable policy atmosphere among other structural reasons, Pratik Gupta, Chief Executive Officer (CEO) and Co-Head Kotak Institutional Equities said in a media briefing.

Mr. .Gupta cited two reasons behind the optimism of the FIIs – the first one being India’s demographic and structural advantage. The second reason is FIIs see India’s democracy to be politically stable in comparison to China and the U.S. India is the fastest growing economy and has a demographic dividend that would last another two decades, he said.

Apart from these, Mr. Gupta also noted that the smaller share of exports in India’s GDP despite being a domestic cause for concern was an insulation from excessive tariffs.

Experts, however, are divided on the topic of tariff effects.

In a research note titled “Trump’s reciprocal tariffs, who’s at risk?”, Nomura said that India, Thailand and China were at a risk of higher reciprocal tariffs. “At the country level, reciprocal tariffs are a bigger risk for emerging Asia than developed Asia,” said Nomura researchers. India had a weighted average effective tariff of 9.5% on US exports to India.  This was just a 3% on India’s exports to the U.S., the researchers added.

While the long-term prospects may seem positive, in the short term, FIIs continue to be net sellers. Barring December 2024, FIIs have sold continuously since October 2024.

As of January 2025, FIIs sold more than ₹78,000 crore in equities according to data from the Centre for Monitoring Indian Economy (CMIE).

The earnings growth has been tepid and would continue to be so, may be two quarters into 2025-26, Mr. Gupta said, adding this may mean an FII turnaround is not likely in the short run.

Emerging markets have severly underperformed U.S. in terms of returns in dollar terms in the past decade, he stated. Further India’s expensive valuations and a general selling in emerging economies prompted foreign investors to move back to the U.S., he added.