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After a painful 2025 for foreign investors, foreign portfolio investors (FPIs) may look to bounce back in Indian equities in 2026. Market strategists say the conditions that led to record outflows last year are easing, while earnings prospects, valuations and macro stability are becoming supportive.
Antique Stock Broking Limited, in its report titled 'India Equity Strategy 2026', said FPI equity outflows in calendar year 2025 were the highest in absolute terms at USD 17.5 billion (0.3% of market capitalization). We believe we will see a resurgence in CY26 as the six-month FPI equity flows as a percentage of market capitalization are (-)1 standard deviation. India has low FPI ownership despite strong revenue growth and macro outlook. Reasonable stock valuation compared to other emerging and developed markets. Low market beta version.
However, given relatively reasonable valuations, the preference for emerging market economies exposed to artificial intelligence (AI) relative to India may persist in 2026, which is a key risk. Equity inflows into mutual funds are likely to be sustained given stable SIP flows (increasing preference for equities), EPFO/NPS flows, low domestic shareholding and superior equity return profile compared to other asset classes, the report said.
FPIs withdrew about $17.5 billion from Indian equities in 2025, the largest annual outflow on record in absolute terms. The selloff reflects weak earnings momentum, global risk aversion, and improved relative opportunities in AI-focused markets, the report highlighted.
Corporate profits are expected to accelerate rapidly again. Nifty's earnings are expected to grow at a CAGR of around 16% from FY26 to FY28, compared to around 7% in the last two years.
India's macro environment is unusually supportive. Real GDP growth is expected to remain around 7.5%, inflation remains benign, and the current account deficit is expected to be less than 1% of GDP. A stable currency outlook and easing global financial conditions reduce one of the biggest risks for FPIs concerned about sudden macro shocks.
The report highlighted global investors' exposure to AI and said they are increasingly allocating capital to markets and companies directly exposed to AI, such as semiconductors, advanced hardware, cloud infrastructure, and AI-native platforms.
The United States, Taiwan, and parts of East Asia dominate these value chains. Despite strong domestic growth, India remains primarily an AI user rather than a large-scale AI producer. This creates a mismatch between where global capital wants exposure and where India's strengths lie.
The report further pointed out that AI risks do not impact all sectors equally in India.
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Capital-intensive domestic cyclical sectors such as banking, infrastructure, and consumption are likely to continue to perform domestically.
However, technology services, traditional exporters, and index-heavy sectors are likely to be relatively ignored without a credible AI monetization story. This is likely to widen the differences between sectors within the Indian market.
