Jignesh Desai of Centrum Broking notes that while the heavy selling phase by foreign investors appears to be over, future capital inflows depend on stable oil prices, a steady rupee, and consistent earnings. He sees a fair risk-reward balance in Indian equities but warns that rising global bond yields and potential weather-related inflation remain key risks for the market.
The heavy selling phase by foreign institutional investors (FIIs) in Indian equities appears to be easing, according to Jignesh Desai, CEO of Institutional Equities at Centrum Broking. While net inflows were recorded in July and early August 2026, sustaining this momentum requires a stable environment. For foreign capital to continue flowing into India, the market will likely need to see consistent earnings growth without downgrades, coupled with stability in the rupee and crude oil prices.
From a valuation perspective, the market is currently in a fair zone. The Nifty index is trading at less than 20 times its estimated earnings for the financial year 2027, which sits below its historical average. This suggests that the overall market is not excessively expensive, though selectivity in stock picking remains crucial.
One significant risk factor is the movement of global interest rates. The cost of capital for foreign investors is heavily influenced by bond yields globally. Centrum Broking has identified the 10-year government bond yield range of 7.3% to 7.5% as a potential tipping point. If yields consistently rise above this level, it could make Indian equities less attractive relative to the risk involved. Private banks, which have a high level of foreign ownership at approximately 41%, are particularly sensitive to these shifts in global yields.
While the market seems to have moved past recent fears, there are underlying concerns regarding domestic consumption and inflation. Specifically, the impact of the monsoon on harvests is a potential pressure point. If rainfall remains weak, it could disrupt supply chains and impact food inflation, which in turn might challenge the consumption recovery expectations built into corporate earnings estimates. Investors will be watching whether companies can maintain their earnings growth despite these pressures.
In terms of opportunities, the mid-cap and small-cap segments have shown resilience, with earnings growth in these areas often outpacing that of large-cap companies. There is significant interest in structural growth themes, including manufacturing, defense, and the broader electronics ecosystem. Other areas such as transmission and grid equipment, semiconductor manufacturing, and data center infrastructure are also emerging as key focus areas for long-term investors.
The most important monitorable for investors in the coming months will be earnings visibility. As the market moves away from passive index-based investment, the ability to select stocks based on primary research—such as supply chain checks and company-specific fundamentals—is becoming more important. Investors may track whether upcoming corporate results confirm the anticipated growth without significant downgrades.