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FII Comeback to India Unlikely Even After AI Trade Peaks: Bernstein
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Moneycontrol•22-09-2026, 14:08
FII Comeback to India Unlikely Even After AI Trade Peaks: Bernstein
- •Bernstein predicts foreign investors won't return to Indian equities in large numbers, even after the AI-led investment trade peaks, citing deeper challenges than temporary capital rotation.
- •The brokerage questions if India still offers the growth, valuation, and returns needed for sustained global capital allocation, noting that historical drivers like economic growth and interest rate differentials have weakened.
- •Relative valuations, currency returns, and forward earnings revisions are now more relevant to foreign investors, with India's valuation premium and the rupee's strength becoming significant hurdles to FII inflows.
- •Bernstein argues that strong GDP growth or a few strong earnings quarters alone are insufficient to attract structural foreign capital, distinguishing between cyclical improvements and a fundamental shift in investor perception.
- •The report challenges the idea that foreign money is simply waiting to rotate into India post-AI trade, emphasizing that India needs to build globally competitive industries for a long-term structural allocation.
Key Questions Answered
Bernstein argues that the challenge facing foreign flows in India is deeper than a temporary capital rotation, questioning whether the market still offers the growth, valuation, and return combination needed to support a sustained global capital allocation.
Historically, stronger Indian economic growth and later the India-US interest rate differential drove FII inflows. In recent years, however, relative valuations, currency returns, and forward earnings revisions have become much more relevant to foreign investors.
Periods of higher relative valuations have increasingly coincided with FII outflows. Additionally, currency weakness reduces foreign investors' dollar returns, creating a feedback loop that can encourage further selling.
