When Will FIIs Come Back To India? Equity prices do not move because FIIs buy. Like most investors, FIIs chase price. They usually do not create trends. Instead of equity investors and traders, this question should interest economists tracking India's Balance of Payments. India's capital account has recently slipped into deficit. The reasons are visible. Weak FDI inflows. FPI outflows. Large outward investments by Indians. Easy exits through IPOs, FPOs and OFS. Stretched equity valuations. A shaky macro backdrop. That is precisely why this may be a strong contra signal. What do foreign investors see today? More reasonable valuations. In some pockets, perhaps even cheap ones, especially in large, high quality, liquid listed firms. More important, the Indian Rupee is near one of its weakest REER levels in many years. And many of India's macro stresses now look near their peak. Which means they are more likely to be priced in. Historically, the biggest foreign inflows into India have come when valuations were cheap or at least reasonable. Not when optimism was highest. If there is a period after the COVID crash when FPI and FDI flows can begin to improve again, it is around this zone. Source: DSPNetra
