September 19, 2025

Mumbai is buzzing with talks after the US Federal Reserve slashed interest rates by 25 basis points, with hints of even more cuts to come in 2025. This move naturally raises the big question: Will foreign investors rush back to Indian stocks? Normally, when US rates drop, the dollar weakens and emerging markets like India become hotcakes for global money. But this time, the mood is a bit different. Experts on Dalal Street are not so sure we'll see the usual money flood. Why? Because Indian markets are pricier than ever, and China offers cheaper, attractive opportunities. Siddarth Bhamre, head of research at Asit C Mehta Intermediates, says, "The equity allocation is expected to shift from the US to emerging markets post the cut but given the expensive valuations in India, China is likely to see higher foreign interest." This year, foreign investors have sold a whopping ₹2.28 lakh crore of shares, but September brought relief as selling slowed down, with only about ₹10,597 crore sold, much less than the combined ₹80,000 crore dumped in July and August. Nilesh Shah, MD of Kotak Mahindra Asset Management, notes, "The pace of sell-off is slowing, but global investors continue to believe India is expensive." Data from Julius Baer India shows the MSCI India index trades at a high 22 times price-to-earnings ratio, compared to MSCI Emerging Markets at 14.3 times. This means Indian stocks are costly, making some foreign investors stay cautious, waiting for clearer signals like tariff policies. Meanwhile, active funds are busy in the IPO market. With the US dollar index dropping 0.7% this week to 96.9 after the Fed’s decision, there’s hope for more moves toward emerging markets. Yet, experts warn that predicting the exact timing of foreign fund flow is tough. On the bright side, India's valuation premium over other emerging markets has come down to long-term average levels thanks to recent market dips. Investment advisors believe the wave of foreign selling might end soon. Unmesh Kulkarni of Julius Baer India shares, "FPI pessimism is currently at record high levels, and the return of earnings momentum along with the resumption of trade talks with the US should improve the FPI sentiment for Indian equities." What could spark the big turnaround? Domestic institutional investors (DIIs) like mutual funds, pension funds, and insurers, who have already invested a massive ₹5.46 lakh crore in 2025, might ignite a 'fear of missing out' feeling among foreign investors and flip the selling trend into buying, says Nilesh Shah. So, while the global financial drama unfolds, Indian markets wait with bated breath. Will foreign investors dive back in, or will domestic money power the show? Only time will tell, but one thing is sure – the stock market story has never been more thrilling!

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Tags: Us federal reserve, Indian equities, Foreign capital, Market valuation, Foreign portfolio investment, Domestic investors,