Amid concerns surrounding the valuations of AI-related stocks and the concentration risk involved in investing in a few stocks in this segment, FII flows into this segment might decline
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NEW DELHI — Amid concerns surrounding the valuations of AI-related stocks and the concentration risk involved in investing in a few stocks in this segment, FII flows into this segment might decline and India may again start attracting FII flows, according to analysts.
Total FII selling stood at INR 32,963 crore (up to May 30), taking the total selling for 2026, so far, to INR 224,932 crore. This year, so far, FIIs have invested INR 15,497 crore through the primary market.
Poor earnings growth in India, much superior earnings growth in countries like the US, Japan, South Korea and Taiwan and the strong AI-related trade in these countries, particularly in South Korea and Taiwan, contributed significantly to the FII selling in India and moving the money to the above mentioned markets, according to Dr VK Vijayakumar, Chief Investment Strategist, Geojit Investments Ltd.
Another major factor responsible for the FII selling has been the steady depreciation in rupee.
Rupee, which was about 90 to the dollar at the beginning of this year, steadily depreciated to 96.96 recently. But during the last couple of days, rupee has been appreciating; rupee closed at INR 95 to the dollar on Friday.
“The sharp decline in Brent crude to $92 contributed significantly to the stability in the rupee. This stability in the rupee can restrain the FII flight from India,” the market watcher said.
The primary catalyst for this large-scale FII withdrawal has been escalating geopolitical tensions in West Asia, which have heightened global uncertainty and risk aversion. This has been compounded by several macroeconomic pressures such as weakening Indian Rupee, higher crude prices.
Looking ahead, institutional flows in the coming month are likely to remain sensitive to developments around US–Iran tensions, oil-price trajectories and RBI monetary policy outcome and progress of the monsoon, said market experts.