Foreign Institutional Investors Shun Indian Equities: Understanding the Reasons
Foreign institutional investors (FIIs) have largely stayed away from Indian equities this year, despite a strong rally across other emerging markets. According to Sridhar Sivaram, Investment Director at Enam Holdings, the combination of high valuations and muted earnings growth has made India less attractive compared to peers.
High Valuations and Muted Earnings Growth: A Barrier to FII Investment
Sivaram explained that the high price-to-earnings (PE) ratio of the Indian market, coupled with low earnings growth, has made it less appealing to foreign investors. Indian stock market news has been dominated by this trend, with FIIs preferring other emerging markets with better earnings growth and cheaper valuations.
For instance, Korea has seen a 60-70% increase, China 40%, and Latin America 30-40%, while India has remained flat in dollar terms. This disparity in performance has led to a significant outflow of foreign investments from the Indian market. In the first week of December alone, foreign investors sold off equities worth Rs 11,820 crore, taking the cumulative FII outflows for 2025 above Rs 1.5 lakh crore.
Expected Turnaround in Corporate Earnings
Despite the current underperformance, Sivaram expects a turnaround in corporate earnings over the next six quarters. He predicted that FY27 could see 15-18% growth on a low base, which could lead to reasonable returns for investors. Indian equities market analysis suggests that earnings remain the single biggest determinant of market performance, and a revival in earnings growth could lead to a positive trend in the market.
Global Challenges and Their Impact on the Indian Market
Sivaram also highlighted the various global challenges that have affected the Indian market, including high valuations, poor earnings growth, and global headwinds. He noted that these challenges were anticipated by his team, and the current market trends are a reflection of these factors. Indian stock market trends are closely tied to global economic conditions, and investors must remain aware of these factors to make informed decisions.
Bullish Stance on Precious Metals
Sivaram also expressed his bullish stance on precious metals, particularly gold and silver. He remains long on both assets, which have delivered strong returns throughout 2025. Precious metals investment can provide a hedge against market volatility and inflation, making them an attractive option for investors seeking diversification.
Conclusion
In conclusion, the Indian equities market has faced significant challenges in 2025, including high valuations and muted earnings growth. However, with an expected turnaround in corporate earnings, investors can look forward to reasonable returns in the future. It is essential for investors to remain informed about Indian stock market news today and global trends to make informed decisions and navigate the complex market landscape.