As investors move away from China and valuations improve, India could see FIIs returns: Bay Capital

India is set to capture more capital, driven by its stable economic environment, growing digital economy, and entrepreneurial ecosystem as global investors move away from China due to geopolitical risks, according to India-focused investment management firm Bay Capital. The management was speaking as a part of a media roundtable to discuss India’s market outlook.

While FIIs have been net sellers, pulling out approximately Rs 1–1.2 lakh crore since January, improving market valuations could encourage fresh inflows in the coming months. They noted that some hedge funds have exited due to short-term strategies, while others have shifted allocations to China and other emerging markets. This portfolio realignment has contributed to the selling pressure in Indian equities.

But going ahead, things could improve, they believe. "Over the past year, many FIIs expressed concerns about high valuations in India. However, those conversations are now turning more constructive, as valuations have become more reasonable," Keyur Majmudar Managing Partner , Bay Capital Investments Advisors said.

Despite the fluctuations in FII flows, Bay Capital believes domestic savings will play a far greater role in shaping India’s equity markets over the next decade. In economies like the US and Japan, household savings have historically formed the backbone of equity ownership. A similar trend is emerging in India, where domestic institutions—mutual funds, insurance firms, and direct retail investors—are increasing their market share.