Foreign institutional investor (FII) flows into India are showing signs of bottoming out, with foreign investors beginning to cautiously return to the market, according to EPFR Global. The observation comes after an extended stretch in which foreign portfolio investors pulled back from Indian equities, weighing on market sentiment and prompting domestic institutional investors to absorb much of the selling pressure.

Cameron Brandt, Director of Research at EPFR Global, said that foreign investor flows into India remain cautious, while emerging-market allocations are shifting. He also pointed to cooling froth in Asia's artificial intelligence-related trades and a renewal of inflows into gold funds. The cooling in AI-related trades is notable for India because global fund allocations to Asian technology and AI themes have been a key driver of regional equity flows, and a rotation away from crowded AI positions can free up capital for other emerging markets. Renewed gold fund inflows, meanwhile, typically signal investor appetite for safe-haven assets amid uncertain conditions.

EPFR Global is a widely used provider of fund-flow and asset-allocation data, tracking flows across mutual funds and exchange-traded funds worldwide. FIIs, also referred to as foreign portfolio investors (FPIs) in India, are overseas institutions that invest in Indian equities and debt, and their flows are closely watched as an indicator of foreign sentiment toward Indian markets. Sustained FII inflows or outflows have historically moved Indian benchmark indices, as foreign investors account for a significant share of trading activity in Indian equities. Whether the tentative return of foreign capital strengthens into a durable trend will depend on factors such as corporate earnings, currency stability, and relative valuations versus other emerging markets in the period ahead.

Original source: CNBC-TV18