Indian markets require Foreign Institutional Investors (FIIs) for a major rally, as domestic flows alone cannot absorb upcoming supply pressures from QIPs and IPOs, says Motilal Oswal CIO Sandipan Roy.
Sandipan Roy, CIO of Motilal Oswal Wealth Management, emphasized the crucial role of FIIs in driving a significant rally in Indian markets. Highlighting market corrections and upcoming supply from QIPs and IPOs, he urged investors to monitor macroeconomic conditions and liquidity trends. Roy shared these insights during the CY25 Wealth Outlook session.
FII Flows: A Catalyst for Market Growth
Sandipan Roy stressed the indispensable role of FIIs in sustaining a robust market rally. He noted that while domestic flows have supported market stability, they are insufficient to handle the substantial supply anticipated in CY25 from Qualified Institutional Placements (QIPs) and Initial Public Offerings (IPOs). FIIs, despite net selling ₹1.1 lakh crore in October and additional withdrawals in subsequent months, remain critical for absorbing this influx. Roy believes improved macroeconomic conditions are essential to revive FII participation, underlining their impact on market sentiment and liquidity.
Also Read: Impact Of Heavy FII Sell Off in India
Economic Slowdown and Recovery Prospects
Addressing the recent economic slowdown, Roy described it as self-inflicted rather than structural. He attributed the decline to the Reserve Bank of India’s (RBI) restrictions on retail loans, which curtailed consumer spending. Additionally, election-related priorities shifted government focus from capital expenditure to populist measures. Despite these headwinds, Roy maintained a positive medium-term outlook for Indian equities, driven by increased government spending, better liquidity conditions, and projected strong corporate earnings growth in FY26 and FY27.
Read More: October’s Shift: Foreign Investors Rethink Indian Bonds Amid Rising Yields
Navigating Market Volatility
The recent market correction, according to Sandipan Roy, stems from a combination of factors, including not only an earnings slowdown but also an oversupply of equities, driven by increased activity in Qualified Institutional Placements (QIPs) and Initial Public Offerings (IPOs). Roy highlighted the importance of adopting a structured and disciplined investment approach during such volatile periods. He advised investors to focus on long-term opportunities while staying mindful of immediate challenges like liquidity constraints and fluctuating interest rates.
Also Read: IMF’s GDP Growth Forecast for India
As macroeconomic conditions stabilize, the return of Foreign Institutional Investors (FIIs) is expected to play a pivotal role in complementing domestic flows and enhancing market performance. This return would bring in much-needed liquidity and bolster confidence, particularly as improved government spending, corporate earnings growth, and favorable policy measures create a conducive environment for investments. Roy’s insights underscore the importance of balancing short-term adaptability with long-term strategic planning to navigate the complexities of evolving market dynamics effectively.
