FII flows may return in force in 2026 as rupee weakens and global AI risks rise: Pankaj Tibrewal

Foreign institutional investor (FII) flows into Indian equities could stage a strong comeback in calendar year 2026, aided by a weaker rupee, improving growth visibility and rising global concerns around artificial intelligence-driven disruptions, according to Pankaj Tibrewal, Founder and CIO of IKIGAI Asset Manager.

Speaking to CNBC-TV18, Tibrewal said the current pessimism around India among global investors may itself be setting the stage for a contrarian rally next year, particularly on the FII side.

“One thing I’m very positive about heading into 2026 is FII flows. With the rupee at 90, growth coming back and AI concerns emerging globally, I’m optimistic that FII flows will resume strongly in calendar year 2026,” Tibrewal said.

Weak rupee, growth revival key tailwinds

Tibrewal pointed out that currency dynamics are becoming increasingly supportive for India. A rupee closer to 90 to the dollar improves export competitiveness and earnings visibility across several sectors, while also making Indian assets relatively attractive from a valuation and return perspective for foreign investors.

At the same time, he believes domestic growth conditions are stabilising after a phase of market readjustment, particularly in the broader market.

“If third and fourth quarter earnings turn out better, as we saw in the second quarter, the market will find itself in a much better position,” he said, adding that India does not face a solvency issue in this cycle, unlike previous downturns.

Global AI risks may redirect capital

Another key factor Tibrewal flagged is the evolving global narrative around artificial intelligence. While AI-led optimism has driven sharp rallies in certain global markets, concerns around disruption, concentration risk and the sustainability of earnings could prompt global investors to reassess portfolio allocations.

“In a world where AI risks are starting to get discussed more seriously, India’s growth visibility and balance sheet strength stand out,” he noted.

This, he said, could work in India’s favour as global capital looks for relatively stable, large growth markets with improving fundamentals.

Extreme pessimism as a contrarian signal

Tibrewal also highlighted sentiment indicators suggesting that India may currently be out of favour with foreign investors — a setup that has historically preceded strong inflows.

“Today, the mood is very sombre and pessimistic. Sentiment is poor — and that itself is a contrarian indicator,” he said.

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He cited anecdotal feedback from a recent FII conference in Singapore, where interest in India was reportedly at one of its lowest points in many years.

“That’s a contrarian signal. When interest is that low, it often means expectations are already washed out,” Tibrewal said.

2026 could surprise on the upside

While near-term volatility and market dislocation may persist, Tibrewal believes the combination of improving earnings visibility, stable corporate balance sheets and supportive macro factors could set the stage for a sharp reversal in foreign flows.

“I think 2026 can surprise all of us on the upside, especially on the FII side,” he said.

For investors, the message is to look beyond near-term gloom and focus on quality companies capable of delivering sustainable earnings growth, as global capital potentially re-engages with Indian equities over the next cycle.

Watch the accompanying video for the full conversation.