FIIs Return to Asia ex-Japan, but India Faces Outflow Concerns

Foreign institutional investors (FIIs) have returned to Asian markets outside Japan in September, encouraged by the U.S. Federal Reserve’s dovish policy outlook and expectations of further interest rate cuts in 2025. While several regional markets witnessed strong inflows, India continues to face mixed sentiment due to high valuations and trade-related concerns.

Asia ex-Japan Attracts Strong Foreign Flows

According to market data, FIIs poured nearly $13 billion into Asia ex-Japan during the first three weeks of September. Taiwan and South Korea emerged as the biggest beneficiaries, drawing $8.14 billion and $5.3 billion, respectively. Analysts attribute this surge to improving risk appetite and the Fed’s cautious stance on global growth risks, which has bolstered investor confidence in select Asian economies.

India’s Fragile Recovery in September

Invest in Indian Markets and Unlock Future Potential With 5paisa!

Open Account Now

India, however, remains a case of cautious optimism. After suffering heavy foreign fund outflows exceeding $4 billion in August, the market managed to turn slightly positive in September with net inflows of $246 million. Experts caution that these inflows remain fragile, as India’s premium valuations and reduced earnings forecasts continue to weigh on investor sentiment. Additionally, ongoing trade tensions with the United States are adding to the risks of renewed selling pressure.

Elsewhere in the region, Malaysia saw a modest $122 million inflow, reflecting limited investor appetite. Indonesia, which had recorded strong foreign buying of $672 million in August, reversed its trend with net outflows of $443 million this month. The Philippines also remained under pressure, reporting net sales worth $6 million, despite its relatively attractive market valuations.

India’s Outlook Hinges on Domestic Factors

Analysts emphasise that India’s prospects are increasingly dependent on domestic policy actions and economic indicators. Recent government measures, such as a cut in Goods and Services Tax (GST) rates and the Reserve Bank of India’s significant reduction in the repo rate in June, are expected to support consumption and corporate profitability. Market participants also anticipate further monetary easing in the coming months, which could provide a boost to growth.

However, foreign institutional investors are likely to adopt a wait-and-watch approach until they see stronger signs of corporate earnings recovery. With valuations still elevated compared to regional peers, FIIs remain cautious about committing significant long-term funds to India in the near term.

Conclusion

While FIIs have returned to Asian markets ex-Japan in September, led by Taiwan and South Korea, India’s position remains uncertain. Limited inflows reflect cautious optimism, but risks from stretched valuations, trade tensions, and muted earnings outlooks could trigger further volatility. Sustained foreign interest in India will likely depend on visible improvements in corporate performance and supportive domestic policy actions.