India Set for FII Inflow Surge Amid Record Corporate Profits by FY26

India is expected to witness a significant increase in Foreign Institutional Investor inflows by FY26, driven by a peak in corporate profits relative to GDP. The economic growth, bolstered by rising corporate profits and robust performance, is anticipated to attract strong FII inflows into the Indian stock market.

India is on the brink of experiencing a substantial increase in Foreign Institutional Investor (FII) inflows by the fiscal year 2026, thanks to projected peaks in corporate profit to GDP during FY26-FY27. This upswing is highlighted in a comprehensive report by Sharekhan, a leading financial services firm, which indicates a marked rise in corporate profits due to favorable economic conditions.

The report states that corporate profits have surged from Rs 3.53 trillion in FY20 to an expected Rs 15.38 trillion by FY25, and may further escalate to Rs 20.84 trillion by FY27. This growth reflects an impressive Compound Annual Growth Rate (CAGR) of 29% since FY20, resulting in a 5.9-fold increase within seven years.

By FY27, corporate profit to GDP is anticipated to rise to 5.3%, signifying robust economic health. This remarkable economic growth, coupled with India's strong performance compared to international counterparts as seen in the MSCI Emerging Markets index, is likely to attract significant FII inflows into Indian equities, thereby fueling the stock market.

The report underscores India's standing as one of the few economies expected to maintain a high growth rate from 2023 to 2028. It projects optimistic economic expansion over the next 3-5 years, fueled by credit, capital expenditure (capex), and consumption. Sharekhan is particularly optimistic about sectors like industrials, engineering, real estate, BFSI (banking, financial services, and insurance), alongside specific consumer stocks.

Nevertheless, sectors driven by exports, such as textiles, garments, IT, and pharmaceuticals, are predicted to outperform benchmark indices in 2025, influenced by tactical positioning and global market trends. With corporate profitability at peak levels and consistent economic growth, India stands well-positioned to draw international investments, cementing its reputation as a significant player on the global economic stage.

(With inputs from agencies.)