Stabilization of the rupee and improved earnings outlook could attract foreign institutional investors (FIIs) back to Indian stock markets, analysts noted. FIIs have sold Rs 30,374 crore in May, totaling Rs 222,343 crore in 2026 so far, surpassing 2025’s total sell figure of Rs 166,283 crore. Dr. VK Vijayakumar, Chief Investment Strategist at Geojit Investments Ltd, highlighted the need to address the reasons behind this continuous selling for FIIs to become buyers in India. Factors such as weak earnings growth in India, better prospects in other markets, high US bond yields, and rupee depreciation are influencing FII behavior.
The analysts emphasized that for FIIs to shift to buying in India, some of these factors need to change in India’s favor. Despite selling large-caps, FIIs are investing in small and mid-cap equities with promising growth and earnings potential, indicating the importance of earnings. The latest Q4 results suggest signs of an earnings recovery, which is a positive development for market sentiment. On the other hand, domestic institutional investors (DIIs) remained net buyers last week, with a total inflow of Rs 16,950 crore over five trading sessions.
Market indices experienced volatility, fluctuating between gains and losses as investors grappled with market uncertainty and mixed sectoral signals. The recent weakness of the rupee may not be solely linked to oil prices or the current account deficit (CAD) but could be attributed more to domestic investors consistently purchasing equities through SIPs, as per Jefferies. The global brokerage highlighted that substantial foreign selling in Indian equities, coupled with robust domestic inflows, is a primary driver pressuring the rupee.
