Foreign institutional investors have withdrawn nearly 40 billion dollars from Indian equities in the past two years. Brokerage Bernstein says their return will be slow and cautious. Flows may remain flat or only slightly positive over the next twelve months. The firm believes easing global headwinds will help but structural revival depends on India building competitive industries in new technologies.
Bernstein points out that large Indian companies represent an older economic era. They consolidate past strengths instead of investing in future technologies. Small and mid‑cap firms remain sub‑scale with low liquidity and limited institutional access. This makes them less attractive for big foreign investors. Historically FIIs invest heavily for two to three years and then pause when domestic institutional investors peak. FII inflows once touched 25 billion dollars annually while DIIs averaged 15 to 20 billion dollars.
Nifty returns have been modest. Over the past decade annualised gains in dollar terms were only 6%. In the last two years returns fell 11% annually. This weakens India’s bright spot narrative. With global artificial intelligence trade peaking, fresh inflows into India look limited.
Bernstein says sustainable FII inflows require India to develop advanced semiconductor manufacturing, deep battery and energy storage capabilities, greater energy self‑sufficiency and globally competitive business models. Without bold moves foreign capital will remain cautious.
