This episode explores why FIIs have been pulling out of India despite strong post-COVID inflows. R Sivakumar explains that the main drivers are India's slowing growth and high valuations, but with valuations now neutral and growth indicators improving, a turnaround in foreign flows could be on the horizon.
Summarized by Podsumo
FIIs have pulled out about $20 billion in the last two years, making net flows over the last decade essentially zero.
India’s nominal GDP growth of 8% in FY26 was the slowest in 23 years, excluding COVID.
Valuations have normalized: India’s P/E is now at the world average, and large caps are trading one standard deviation below their long-term average.
Sivakumar draws strong parallels between 2026 and 2003, suggesting a potential recovery similar to the 2004-2008 rally.
The key to attracting FIIs back is consistent earnings growth of 11-12%, which can be driven by rising pricing power and a capex cycle.
"Why would you pay 20 plus PE for a 8% growth? If India grows at 11 or 12%, then it’s a different story."
"We are trading at one standard deviation below Nifty average. India is not an expensive market today."
"History doesn’t repeat, but it rhymes. The echoes of 2003 are everywhere … and what followed was the mother of all rallies."