{"id":2113,"date":"2026-09-21T08:34:03","date_gmt":"2026-09-21T08:34:03","guid":{"rendered":"https:\/\/newsraise.com\/in\/2026\/09\/21\/bernstein-fii-flows-india\/"},"modified":"2026-09-21T08:34:03","modified_gmt":"2026-09-21T08:34:03","slug":"bernstein-fii-flows-india","status":"publish","type":"post","link":"https:\/\/newsraise.com\/in\/2026\/09\/21\/bernstein-fii-flows-india\/","title":{"rendered":"Bernstein predicts flat to modestly positive FII flows as $40\u202fbn exits linger"},"content":{"rendered":"\n<!-- Quick Adsense WordPress Plugin: http:\/\/quickadsense.com\/ -->\n<div class=\"9fece8afa224fd09e54b043d0febfb58\" data-index=\"1\" style=\"float: none; margin:10px 0 10px 0; text-align:center;\">\n<script async src=\"https:\/\/pagead2.googlesyndication.com\/pagead\/js\/adsbygoogle.js\"><\/script>\r\n<!-- NR ATF -->\r\n<ins class=\"adsbygoogle\"\r\n     style=\"display:block\"\r\n     data-ad-client=\"ca-pub-8898941184964366\"\r\n     data-ad-slot=\"4839033563\"\r\n     data-ad-format=\"auto\"\r\n     data-full-width-responsive=\"true\"><\/ins>\r\n<script>\r\n     (adsbygoogle = window.adsbygoogle || []).push({});\r\n<\/script>\n<\/div>\n<p>Foreign institutional investors (FIIs) have pulled almost $40\u202fbillion from Indian equities over the past two years, according to a note from research house Bernstein. While the outflows have been substantial, the brokerage\u2019s analysts argue that the next 12 months could see FII activity stabilise at a flat\u2011to\u2011modestly\u2011positive level, but primarily as short\u2011term traders rather than long\u2011term investors.<\/p>\n<h2>Why the case for a structural India allocation has weakened<\/h2>\n<p>Bernstein\u2019s managing director Venugopal Garre, together with analyst Nikhil Arela, wrote that the traditional appeal of Indian large\u2011cap stocks has eroded. They note that many of these companies are \u201cstruggling to reinvent themselves,\u201d with incumbent business models under pressure from new technologies. The analysts added that small\u2011 and mid\u2011cap firms, often referred to as SMIDs, are \u201cdifficult to access at institutional scale,\u201d making it harder for foreign capital to justify a durable allocation to the market.<\/p>\n<p>The note points to the performance of the Nifty index as a further deterrent. Over the last decade, the index has delivered roughly a 6\u202fpercent annualised return when measured in U.S. dollars. By contrast, the past two years have seen an 11\u202fpercent annualised decline. Garre and Arela argue that such a track record diminishes the perception of India as a \u201cbright spot\u201d for foreign investors.<\/p>\n<h2>Cyclical patterns in institutional flows<\/h2>\n<p>Bernstein highlights a recurring cycle in the flow of capital from both domestic and foreign institutional investors. Typically, two to three years of foreign inflows are followed by a lull period during which domestic institutional investors (DIIs) peak and FIIs either lock in profits or hold cash. Historically, the peak of FII inflows has hovered around $25\u202fbillion per year, while DII inflows have peaked at a lower $15\u201120\u202fbillion annually.<\/p>\n<p>The analysts note that simultaneous strong buying from both FIIs and DIIs has been rare, with 2023 cited as the most recent instance of both groups acting as significant buyers. This cyclical behaviour, they suggest, underpins the modest outlook for future foreign inflows.<\/p>\n<h2>Large\u2011caps, SMIDs and the challenge of capital deployment<\/h2>\n<p>According to the Bernstein note, India\u2019s large\u2011cap firms represent a \u201cbygone economic era.\u201d The commentary observes that many of these companies are focused on consolidating past gains rather than investing in future growth, often relying on policy support to shield themselves from global competition.<\/p>\n<p>The report also links India\u2019s limited progress in emerging sectors\u2014such as electric vehicles, semiconductors and solar energy\u2014to a reluctance among deep\u2011pocketed firms to commit capital. If large\u2011caps cannot deliver the growth needed to attract FIIs, the analysts say foreign investors would have to look toward SMIDs. However, most SMIDs suffer from low free\u2011float percentages, limited liquidity and sparse analyst coverage, conditions that are \u201chardly an ideal destination for large institutional capital.\u201d<\/p>\n<p>Garre and Arela warn that flows into SMIDs are often driven by news headlines rather than solid fundamentals. The market, they explain, rewards positive narratives but can punish sharply when quarterly results fall short. By the time a handful of SMID winners become truly investible, much of the early value creation may already have occurred.<\/p>\n<h2>The limited impact of AI\u2011driven trading<\/h2>\n<p>Bernstein also comments on the broader context of artificial\u2011intelligence\u2011driven trading across global markets. The analysts contend that even if AI\u2011related trading peaks, it is unlikely to revive FII flows into India. Global capital, they argue, is not designed to chase \u201cannuity\u2011like\u201d returns while accepting the valuation, liquidity and execution risks that increasingly characterize parts of the Indian market.<\/p>\n<p>For a genuine structural revival in foreign inflows, the note stresses that India must develop globally competitive industries in emerging areas. Specific capabilities highlighted include advanced semiconductor manufacturing (beyond mere assembly), deep expertise in batteries and energy storage, greater energy self\u2011sufficiency, and business models capable of securing meaningful market share on the world stage.<\/p>\n<p>In summary, while Bernstein anticipates that FII activity could level out over the coming year, the firm sees little evidence of a long\u2011term, structural shift in foreign capital allocation to India. The combination of large\u2011cap stagnation, SMID liquidity constraints and the broader risk\u2011averse posture of global investors suggests that any return of FIIs may be limited to short\u2011term trading rather than sustained investment.<\/p>\n\n<div style=\"font-size: 0px; height: 0px; line-height: 0px; margin: 0; padding: 0; clear: both;\"><\/div>","protected":false},"excerpt":{"rendered":"<p>Bernstein analysts say foreign institutional investors may resume trading in Indian equities but long\u2011term allocations remain unlikely after nearly $40\u202fbn of outflows.<\/p>\n","protected":false},"author":3,"featured_media":2114,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[299],"tags":[2248,2247,1365,2249,2250],"class_list":["post-2113","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-news","tag-bernstein-analysis","tag-foreign-institutional-investors","tag-indian-stock-market","tag-large-cap-companies","tag-smid-equities","entry"],"_links":{"self":[{"href":"https:\/\/newsraise.com\/in\/wp-json\/wp\/v2\/posts\/2113","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/newsraise.com\/in\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/newsraise.com\/in\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/newsraise.com\/in\/wp-json\/wp\/v2\/users\/3"}],"replies":[{"embeddable":true,"href":"https:\/\/newsraise.com\/in\/wp-json\/wp\/v2\/comments?post=2113"}],"version-history":[{"count":0,"href":"https:\/\/newsraise.com\/in\/wp-json\/wp\/v2\/posts\/2113\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/newsraise.com\/in\/wp-json\/wp\/v2\/media\/2114"}],"wp:attachment":[{"href":"https:\/\/newsraise.com\/in\/wp-json\/wp\/v2\/media?parent=2113"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/newsraise.com\/in\/wp-json\/wp\/v2\/categories?post=2113"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/newsraise.com\/in\/wp-json\/wp\/v2\/tags?post=2113"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}