Protectionist US policies, a weakening rupee, and a slowing domestic economy triggered a sharp decline in earnings growth, prompting foreign institutional investors (FIIs) to withdraw capital in the ongoing fiscal year. Data reveals that global investors offloaded shares worth over Rs 1.43 lakh crore between April 1, 2024, and March 25, 2025. However, the trend saw some reversal, with FIIs buying shares worth Rs 14,650 crore over the past three trading sessions between March 21 and March 25, registering the first consecutive three-day buying since December 10-12, 2024. The question now is whether overseas investors are gradually returning to the domestic equity markets or if this is merely a temporary rebound. Himani Shah, Co-Fund Manager, Alchemy Capital Management, says, “FIIs may return when global conditions stabilise, such as a reduction in the US interest rates and improved geopolitical stability. Additionally, attractive valuations and strong economic growth in India could draw FIIs back in the medium to long term.” Following the recent correction, the Nifty50's price-to-earnings (P/E) ratio stood at 21.04 times on March 25, compared to its 5-year average of 24.80 times. Despite the market volatility, the 50-share index has gained 6% in FY25 as of March 25. Shah further added that while there is a lot of focus on the India vs. China debate, the DXY (US Dollar Index) seems to have peaked out, which is positive for emerging market equity inflows. “US equities are witnessing a growth unwind, which should be positive for the rest of the world (ROW), including emerging markets, and helps India as well,” Shah said. Sharing his views on FII flows, Vipul Bhowar, Senior Director Listed Investments, Waterfield Advisors, said, “Emerging markets, including India, have underperformed relative to developed markets over the past few decades (USD terms), leading to scepticism among global investors. Compared to other emerging markets, Indian equities appear expensive.” He added that corporate earnings in India are slowing down, and projections indicate a significant deceleration from previous years. Recent tax cuts and protectionist policies in the US have led to capital withdrawal. “Historically, India’s markets have attracted foreign institutional investors (FIIs) due to their strong growth potential. If India continues to demonstrate economic resilience, maintain stability in key policies, and provide favourable market conditions, it could encourage increased FII activity,” Bhowar said.