FIIs near historical lows: Jio BlackRock flags potential contrarian setup for Indian equities

Foreign investor positioning in Indian equities is nearing historical extremes, with early signs of a rebound in foreign flows emerging after months of sustained outflows, according to Jio BlackRock Asset Management’s The Macro Canvas – August 2026.

Foreign investor sentiment weakened sharply between March and June 2026, resulting in significant FII outflows, while domestic investors remained steadfast buyers, the report said.

Strong and consistent domestic mutual fund (DMF) inflows helped cushion market volatility and provided an important counterbalance to foreign selling, it said. The reduction in outflows in June and the subsequent return of FII inflows in July suggest that the worst of the foreign investor unwind may be behind us, with early signs of sentiment beginning to improve, the report said.


“Resilient domestic participation and the return of FII inflows signaling early signs of a sentiment turnaround,” said Jio BlackRock.

Foreign investor positioning near historical extremes

India-dedicated flows as a percentage of free-float market capitalisation are approaching levels that have historically coincided with strong forward returns, Jio BlackRock said.

The rolling one-year India-dedicated flow cycle is close to its lows, a level last seen during the Covid collapse in December 2020 and the Nano-Bon rally trough.

Each prior trough was followed by a meaningful rebound in flows and markets, establishing a clear pattern of cycle recovery, the report said.

At current levels, the ratio is pricing in significant pessimism, “well beyond what fundamentals alone justify”, it said.

A substantial unwinding of foreign investor allocations has already played out over the past year, suggesting that a large part of the negative sentiment may already be reflected in positioning, according to the report.

“Flows are a lagging, not leading, indicator. When they bottom, markets have already started to recover. The contrarian setup is building,” said the report.

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India’s valuation premium comes down

India’s valuation premium has also moderated, with the country’s equity valuations moving closer to historical averages, Jio BlackRock said.

India’s 12-month forward P/E has reverted to its 10-year average of around 20x, after trading at a sustained premium.

India’s P/E relative to the MSCI Emerging Markets index has also pulled back to its long-run average of around 1.4x, eliminating a key deterrent for global allocators, the report said.

“Valuation is no longer the enemy. For a patient investor, the entry point today looks far more attractive than it was 12–18 months ago,” said Jio BlackRock.

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