According to a new market study by CNI InfoXchange, India's equity markets could be heading into another major structural bull phase with the Nifty potentially climbing beyond 42,000 by 2028 if foreign institutional investor (FII) inflows return in a sustained manner. The report, titled 'Nifty's Resurgence With the Return of FII', analyses market cycles between 2019 and 2026 and argues that Indian equities have become increasingly resilient despite large foreign outflows because of rising domestic institutional participation and deepening retail liquidity.
The study divided the market into four historical phases and projected a fifth phase between May 2026 and December 2028, during which it expects the Nifty to potentially rally toward 42,000 if India attracts another $50 billion of foreign inflows. During Phase I between January 2019 and September 2021, India received nearly $47 billion of net FII inflows, helping the Nifty rally 62.7% from 10,862 to 17,671 despite the Covid-led crash in March 2020. The strongest rally came during Phase III between July 2022 and September 2024, when India attracted nearly $45 billion in FII inflows while the Nifty surged 63.5%.
The report noted that sectors such as IT, specialty chemicals, pharmaceuticals, metals and infrastructure strongly outperformed during Phase I as global investors chased India's China+1 opportunity. During Phase II between October 2021 and June 2022, aggressive US Federal Reserve tightening triggered FII outflows of over $32 billion, yet the Nifty corrected only around 16.5%, reflecting growing resilience from domestic institutional investors and SIP inflows. The study argues that this period marked a structural shift where Indian markets began decoupling from global volatility due to strong domestic participation.
Looking ahead, the study expects India's GDP growth to remain between 6.5% and 7.2% through 2028, supported by infrastructure spending, manufacturing incentives and continued capex expansion. One of the more striking projections is that India could potentially surpass China in MSCI Emerging Markets index weight by FY28, with India's weight expected to rise toward 25%. That could trigger passive inflows of $12 billion-$18 billion alongside total FPI and FDI inflow potential of $160 billion-$180 billion over FY27-FY28.
The report expects the USD/INR exchange rate to move into a new corridor of 96-98 over the next two years as the dollar remains structurally strong globally. Despite potential rupee depreciation, the study argues that FII sensitivity to rupee depreciation may be overstated because historical data shows FIIs returned with larger inflows even at weaker rupee levels. The report identified potential US Federal Reserve policy shifts, Japan carry-trade unwinding, Middle East tensions, oil price spikes and AI-related disruptions as key variables that could influence foreign capital flows into emerging markets.
