Foreign institutional investors (FIIs) may be nearing the end of their record-breaking selling spree in Indian equities, with easing outflows coinciding with stronger-than-expected corporate earnings and valuations that have slipped below post-pandemic averages, according to Nomura.
FIIs sold around $5 billion in the fortnight ended Oct. 15, their heaviest fortnightly outflow in 12 fortnights, taking cumulative net selling since Sept. 15 to about $8.8 billion. However, the pace of selling has eased over the past 15 days.
The shift comes as India’s earnings cycle begins to deliver a stronger signal. Of the 134 companies in Nomura’s BSE 200+ universe that had reported results, normalised profit after tax rose 34% from a year earlier, beating consensus estimates by 18%. Excluding oil and gas, normalised profit growth stood at 29%, still 5% ahead of expectations.
“The aggregate print is strong, but the distribution is not,” Nomura said, noting that the number of earnings beats and misses was broadly even.
Oil and gas, power and coal, metals, infrastructure and pharmaceuticals reported results ahead of consensus, while consumer staples, automobiles and chemicals missed estimates. The earnings recovery following the fiscal and monetary stimulus of 2025 has also been stronger than the Street expected, according to Nomura.
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Valuations offer FIIs a lower entry point
Nomura said foreign flows could revive in the near term as starting expectations remain low and valuations across most sectors are below their post-pandemic averages. The Indian market has already gained 6% in dollar terms since Oct. 8, outperforming most other markets. The Nifty has also outperformed the AI-heavy indices of Korea, Taiwan and the Nasdaq amid a correction in global AI stocks.
That relative performance could make Indian equities more attractive to global investors, particularly if earnings continue to hold up and market concerns around global technology valuations recede.
Nomura said a potential reduction in long-term capital gains tax for foreign institutional investors, falling global yields and expectations that the rupee will remain supported by central-bank intervention could further improve sentiment.
Oil prices remain a risk, but they have already corrected 7% from their recent peak, easing one of the pressure points for India’s macroeconomic outlook.
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The combination of stronger earnings, cheaper valuations and easing FII selling could push the Nifty beyond Nomura’s March 2027 target of 24,000. The target is based on a valuation of 17 times estimated FY28 earnings per share.
However, the brokerage remains cautious about the durability of the recovery. Consensus expectations point to normalised profit growth of only 3% in the second half of FY27, compared with 34% in the second quarter and 17% in the first half.
Elevated interest rates and commodity prices could also weigh on earnings growth in the coming quarters. The distribution of earnings remains uneven, with several sectors still falling short of expectations.
From a longer-term perspective, Nomura said geopolitical and technological uncertainty could continue to weigh on growth expectations.
What could bring foreign money back?
For now, Nomura’s thesis rests on three developments moving in the right direction: the intensity of FII selling is easing, earnings are outperforming low expectations and valuations have become more reasonable.
The brokerage said this combination could improve sentiment towards Indian equities and drive portfolio flows in the near term.
The immediate test will be whether the earnings recovery broadens beyond a few cyclical sectors and whether the recent moderation in FII outflows continues. If both trends hold, the market may be moving from a period of forced selling to one where improving fundamentals once again influence foreign investor allocation.
