Amid worries about the valuations of AI-related stocks and the risks of investing in a concentrated portfolio, analysts suggest that Foreign Institutional Investor (FII) flows into this sector might decrease. India could see a resurgence in FII flows as a result. FII selling has already reached Rs 32,963 crore by May 30, totaling Rs 224,932 crore in 2026 so far.
Poor earnings growth in India, contrasted with stronger growth in countries like the US, Japan, South Korea, and Taiwan, has led to significant FII selling in India. Dr. VK Vijayakumar, Chief Investment Strategist at Geojit Investments Ltd., attributes this trend to the robust AI-related trade in countries such as South Korea and Taiwan.
The depreciation of the Indian Rupee has also played a major role in FII selling. Starting the year at about 90 to the dollar, the rupee has since depreciated to 96.96, although it recently appreciated to Rs 95 to the dollar. The stability in the rupee, partly influenced by the decline in Brent crude prices to $92, may help curb the flight of FIIs from India.
Geopolitical tensions in West Asia have heightened global uncertainty and risk aversion, leading to a significant FII withdrawal. Factors like a weakening Indian Rupee and higher crude prices have added to the macroeconomic pressures. Market experts anticipate that institutional flows in the upcoming months will be closely tied to developments surrounding US–Iran tensions, oil prices, RBI monetary policy decisions, and the progress of the monsoon.
