FIIs will return to India, but these 5 reasons will keep them at bay for some time

Foreign institutional investors have been persistent sellers of Indian equities since the Middle East conflict began, with net outflows of about $32 billion and 82% of trading sessions seeing selling pressure, according to brokerage Elara. Selling eased only after mid-June, attracting roughly $3 billion in net inflows, but this remains modest compared with the $29.3 billion that exited between early March 2026 and June 15, 2026. Elara cited five reasons FIIs may stay away, including a lack of a strong thematic trigger despite MSCI India-to-EM P/E premium correcting from 1.73x to 1.30x, a preference for US Treasuries during global risk-off phases, narrowing India-US bond yield spreads to around 220 basis points, and a negative implied risk premium of negative 3.03% for fully hedged foreign investors.