Bernstein’s latest market‑watch note says FIIs will stay flat to slightly positive over the next 12 months. The analysis is anchored on a 24‑month net outflow of USD 56.3 billion, a stark contrast to the USD 38.6 billion that flowed in the preceding 24‑month window.
The brokerage highlighted that the link between India’s GDP growth and FII flows has frayed, while the traditional interest‑rate differential with the U.S. no longer drives capital. Instead, currency dynamics dominate, with the rupee’s correlation to flows now exceeding 70 %.
A depreciated rupee erodes dollar‑denominated returns, a factor that has pushed many foreign investors to look elsewhere. Bernstein warns that unless the rupee stabilises or appreciates, the modest inflow forecast may remain just that – modest.
Valuation pressures also loom large. The report notes that relative price‑to‑earnings multiples have climbed, a trend that coincides with weaker FII inflows, making the Indian equity market less attractive on a risk‑adjusted basis.
Sectors such as semiconductors, batteries, and defense are beginning to show global competitiveness, yet their size still limits their weight on foreign capital decisions. Bernstein calls for India to build a broader base of globally relevant companies if it wants to reverse the outflow trend.
Looking ahead, the next FII flow update will come after the April earnings season. Bernstein remains neutral on short‑term capital movement, but signals that a stronger currency, tighter valuations, and a launch of new growth engines could tilt flows into the red.