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India Equities: FPIs Set for 2026 Comeback?
3 Jan
Summary
- Foreign investors may return to India in 2026 after record outflows in 2025.
- Stronger earnings growth is expected, reversing a two-year slowdown.
- AI trend favors other markets, posing a risk to Indian tech sectors.
After a challenging 2025, foreign portfolio investors may re-enter Indian equities in 2026. Record outflows occurred last year due to weak earnings and global risk aversion. However, strategists see improving conditions, with supportive valuations and macro stability.
Corporate earnings are anticipated to grow sharply, with Nifty earnings projected at 16% CAGR from FY26-FY28. India's macroeconomic backdrop remains strong, featuring robust GDP growth, benign inflation, and a low current account deficit, reducing currency risks for foreign investors.
A key challenge for 2026 is the global investor preference for Artificial Intelligence (AI) exposed markets, where India is seen more as a user than a producer. This may lead to sectoral divergence, potentially sidelining Indian tech services and exporters lacking AI monetization stories.
