Foreign institutional investors (FIIs) may be approaching the end of their record-selling phase in Indian equities, according to Nomura. The brokerage believes that easing foreign outflows, stronger-than-expected corporate earnings and more attractive valuations could improve sentiment towards Indian stocks. It also sees the possibility of the Nifty 50 moving beyond its March 2027 target of 24,000 if the improving conditions translate into renewed foreign investment.
The assessment comes after a difficult period for domestic equities, with overseas investors withdrawing billions of dollars from Indian shares. Nomura said FIIs sold approximately $8.8 billion in Indian equities between September 15 and October 15, 2026, including around $5 billion in the fortnight ended October 15. However, the pace of selling moderated over the following 15 days, suggesting that the most intense phase may be losing momentum.
Why Nomura believes foreign selling could be slowing
Nomura’s assessment rests on three developments: moderation in foreign outflows, stronger corporate earnings and lower equity valuations.
1. The pace of FII selling has eased
Foreign investors sold around $5 billion in the fortnight ended October 15, their heaviest fortnightly outflow in 12 fortnights. Cumulative net selling since September 15 reached approximately $8.8 billion.
However, Nomura observed that the pace of selling moderated during the subsequent 15 days. The change is encouraging, but it does not yet establish that foreign investors have become sustained net buyers.
The broader October data also shows why caution is necessary. FPIs withdrew ₹34,843 crore from Indian equities during the month, marking a second consecutive month of heavy outflows. They did, however, turn net buyers in the final week of October, investing approximately ₹6,300 crore between October 26 and 30.
2. Corporate earnings are outperforming expectations
The second-quarter FY27 earnings season has provided another reason for Nomura to take a more constructive view.
Of the 134 companies in its BSE 200-plus research universe that had reported results, normalised profit after tax increased 34% year-on-year. This was 18% higher than analysts’ consensus expectations.
Even after excluding oil and gas companies, normalised profit growth stood at 29%, exceeding consensus estimates by 5%.
The sectors reporting results ahead of expectations included:
- Oil and gas
- Power and coal
- Metals
- Infrastructure
- Pharmaceuticals
However, consumer staples, automobiles and chemicals underperformed expectations.
Nomura cautioned that the overall earnings performance was strong but uneven. The number of companies beating estimates was broadly similar to the number missing them.
3. Indian equity valuations have become more attractive
Nomura also pointed to valuations across most sectors falling below their post-pandemic averages.
Lower valuations could make Indian stocks more attractive to foreign investors who had previously considered the market expensive compared with other investment destinations.
The brokerage noted that the Indian market had gained approximately 6% in US dollar terms since October 8, outperforming most other markets during the period.
It also highlighted the Nifty’s relative performance against AI-heavy indices in South Korea, Taiwan and the Nasdaq following a correction in global artificial intelligence stocks.
Nomura sees the Nifty moving beyond 24,000
Nomura has a March 2027 target of 24,000 for the Nifty 50, but believes the index could move beyond that level if earnings momentum and foreign investor sentiment continue improving.
The target is based on a valuation of 17 times estimated FY28 earnings per share (EPS).
The brokerage’s argument is that a combination of better earnings, lower valuations and reduced foreign selling could support a stronger market recovery.
However, the target is a research estimate, not a guaranteed market outcome. Nomura’s assessment depends on several conditions continuing to improve.
What could bring foreign investors back to India?
Nomura identified several factors that could improve foreign investor sentiment towards Indian equities.
| Factor | Potential impact |
|---|---|
| Stronger corporate earnings | Improves confidence in Indian companies’ profitability |
| Lower valuations | Makes Indian stocks more competitive against other markets |
| Falling global bond yields | Could make emerging-market equities more attractive |
| Rupee stability | Reduces currency-related risks for overseas investors |
| Correction in global AI stocks | Could encourage investors to reconsider allocations to other markets |
| Possible LTCG tax reduction for foreign investors | Could improve the attractiveness of Indian equities |
One important factor is the possibility of a reduction in long-term capital gains (LTCG) tax for foreign institutional investors. Nomura believes such a change could support sentiment, although it remains a potential policy development rather than a confirmed measure.
Oil prices are another variable. Nomura noted that crude had corrected approximately 7% from its recent peak, offering some relief to India’s economic outlook.
India imports a large share of its crude oil requirements. Higher oil prices can increase import costs, put pressure on the rupee, raise inflation risks and affect corporate margins.
Earnings growth could slow in the second half of FY27
Despite the encouraging second-quarter results, Nomura has also highlighted a potential weakness in the earnings outlook.
Consensus estimates suggest normalised profit growth for the second half of FY27 could slow to just 3% year-on-year.
That compares with 34% growth in the second quarter and 17% growth in the first half of FY27.
| Period | Normalised profit growth |
|---|---|
| Q2 FY27 | 34% |
| H1 FY27 | 17% |
| H2 FY27 consensus estimate | 3% |
The expected slowdown reflects a higher comparison base and continuing pressure from elevated interest rates and commodity prices.
This is important because a stock market rally cannot depend indefinitely on improving investor sentiment. Companies ultimately need to deliver stronger revenue, margins and profits to justify higher valuations.
Nomura also warned that geopolitical and technological uncertainty could weigh on longer-term growth expectations.
Why the FII selling slowdown is not yet a confirmed reversal
The distinction between slower selling and renewed buying is important.
Foreign portfolio investors withdrew ₹34,843 crore from Indian equities in October, even though they returned as net buyers during the final week of the month. The latest weekly improvement does not establish that the broader outflow trend has ended.
Domestic institutional investors have also played an important role in supporting Indian equities during periods of foreign selling.
For example, October’s reported FPI withdrawals were partly offset by domestic institutional buying, helping provide liquidity to the market.
A sustained recovery in foreign flows will depend on whether overseas investors continue to increase exposure after reassessing earnings, valuations, currency risks and global investment opportunities.
The Bigger Picture
Nomura’s assessment suggests that Indian equities may be approaching a more favourable phase after months of foreign selling. Better-than-expected corporate earnings and lower valuations could give international investors reasons to reconsider their exposure to India. The possibility of renewed foreign buying is particularly important because sustained FII outflows have been one of the major pressures on the domestic market.
However, the outlook remains conditional. Earnings growth is expected to slow in the second half of FY27, and elevated oil prices, global interest rates, geopolitical risks and currency movements could still affect investor sentiment. The Nifty moving beyond 24,000 will therefore depend on whether the recent improvement in earnings and foreign flows develops into a more durable trend.
Looking Ahead
Investors will be watching November’s foreign portfolio investment data, the remaining Q2 FY27 earnings announcements and movements in crude oil prices and global bond yields. A sustained return of foreign buying, combined with broader corporate earnings growth, could support the market’s recovery. If outflows resume or earnings disappoint, the expected improvement in sentiment could prove temporary.
For now, Nomura’s message is that the worst of the recent FII selling may be behind the market, but a lasting recovery still needs confirmation. Its March 2027 Nifty target of 24,000 provides a reference point for its valuation outlook, while the possibility of a higher level depends on stronger earnings and renewed foreign investor participation.
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