For the Indian markets to witness a significant rally, they cannot solely depend on domestic inflows but require active participation from Foreign Institutional Investors (FIIs), stated Sandipan Roy, Chief Investment Officer at Motilal Oswal Wealth Management. Speaking at the Motilal Oswal Private Wealth Outlook for CY25, Roy noted that the upcoming calendar year would see a surge in supply through Qualified Institutional Placements (QIPs) and Initial Public Offerings (IPOs), which domestic flows alone would find challenging to absorb.
“The recent market correction is not solely due to an earnings slowdown but also the result of increased supply,” Roy said.
He highlighted the consistent FII selling in Indian markets since October 2024. During that month, FIIs net sold shares worth ₹1.1 lakh crore. The trend continued in December 2024, with net sales reaching ₹45,000 crore, and as of January 2025, FIIs have offloaded ₹16,000 crore worth of shares. Roy explained that a resurgence in FII inflows is likely only after an improvement in the country’s macroeconomic conditions. Despite this, he emphasized a positive medium-term outlook for Indian equities, driven by increased government spending, enhanced liquidity, and expectations of robust corporate earnings growth in FY26 and FY27.
He also attributed the recent economic slowdown primarily to election-driven factors, labeling it a “self-inflicted slowdown.” According to Roy, central government spending has slowed significantly due to the election period, although capital expenditure and infrastructure projects remain a focus. Meanwhile, state governments have focused on short-term welfare measures or SOPs.
“The foundation for long-term growth remains intact with capex and infrastructure investments at the forefront, which positions the market well for future growth,” Roy concluded.