Ambit Capital warns that record-high valuations and competitive returns in developed markets, especially in AI and technology, are likely to limit foreign investment in Indian stocks. While domestic SIP inflows have provided a cushion, foreign portfolio investors remain cautious as global opportunities appear more attractive.
What Happened
Ambit Capital has suggested that foreign portfolio investor (FPI) inflows into Indian equities are unlikely to witness a significant resurgence in the near term. The brokerage points to two main factors: stretched valuations within the Indian market and the availability of more attractive growth opportunities in developed economies. According to the firm, while India was once seen as an affordable market with superior growth prospects, the current environment has shifted due to high valuations and a changing global landscape.
The Valuation and Liquidity Story
For nearly two decades leading up to 2016, India was often viewed as a market offering good growth without an excessive valuation premium. However, the post-pandemic period has seen a structural change. Domestic investment, primarily through Systematic Investment Plans (SIPs), has surged, creating a steady stream of capital that continuously absorbs available shares. This influx of domestic liquidity, while positive for market stability, has meant that more money is chasing a relatively limited pool of listed assets. Consequently, this has driven valuations to levels that are expensive compared to India’s historical averages.
Why Global Opportunities Are Appealing
Beyond domestic factors, the global investment climate has evolved. Developed economies are experiencing significant reindustrialization, and the rapid growth of the artificial intelligence (AI) sector has created new, compelling avenues for international capital. Nitin Bhasin, Head of Institutional Equities at Ambit, noted that after more than a decade of near-zero interest rates, yields in developed markets have risen materially. For global investors, this creates a scenario where capital naturally reallocates to where the potential risk-adjusted returns are perceived to be higher, such as in global technology and AI-focused sectors.
Market Reality: FPI Selling vs. Domestic Resilience
The market has already seen signs of this caution. In the first half of June 2026 alone, FPIs recorded substantial net selling in Indian equities, reflecting a shift in sentiment. While domestic institutional investors and retail SIPs have shown resilience, providing a counter-balance to this selling pressure, the brokerage suggests that the lack of FPI buying may continue to weigh on the near-term performance of large-cap stocks. Ambit expects large-cap stocks to remain relatively flat over the coming year, while suggesting that earnings growth will likely be concentrated in specific, defensive sectors such as pharmaceuticals, FMCG, information technology, and telecom.
What Investors Should Track
Investors may keep a close watch on several factors that could influence this trend. Key monitorables include the pace of domestic SIP inflows, as this continues to be the primary stabilizer for Indian markets. Additionally, earnings growth trajectories in key sectors will be important to see if they can justify current valuations. Finally, tracking the broader global macro environment—specifically interest rate trends in developed markets and the performance of global AI-related stocks—will help in understanding whether FPIs might change their stance on emerging markets like India.