Foreign institutional investors (FIIs) are unlikely to make a strong comeback to Indian equities anytime soon, according to Amar K Ambani, Executive Director at Yes Securities. Speaking at the firm's flagship investor conference, Ambani outlined structural and cyclical forces that continue to push global capital away from India. The decline in FII interest stems from modest dollar returns, steady rupee depreciation, and the Magnificent Seven US tech stocks delivering outsized gains that made India appear pedestrian by comparison.
The AI revolution has added a new layer to investor skepticism, with global funds increasingly viewing India as an "old economy" market lacking AI-native growth stories available in the US, Taiwan, and South Korea. As reported by The Economic Times, Ambani noted that "That is where the money is going right now." This shift in technology focus has further diminished India's appeal to international investors seeking exposure to cutting-edge innovation.
Indian markets experienced significant volatility following Union Budget 2026, which raised Securities Transaction Tax (STT) on futures and options. The steep hike in derivatives taxes triggered a broad sell-off, as investors worried about lower trading volumes and earnings pressure for exchanges and retail brokerages. According to The Economic Times, Indian stocks fell sharply in Sunday's special trading session, with the Sensex plunging as investors reacted to the higher tax burden.
According to Ambani's analysis, FIIs may only re-enter under three scenarios: when valuations hit rock bottom, when there's a significant uptick in IPO activity, or when global markets become overheated, making India an attractive diversification option. The current environment shows earnings growth revised down, capex cycle remaining selective rather than broad-based, and the IT sector remaining underweight rather than presenting a value trade opportunity.
