Indian Equities Draw FIIs Amid Oil Concerns, RBI Policy Debate
Foreign institutional investors are returning to Indian equities, notably IT, despite global oil volatility and new RBI policy on NBFC credit. Geopolitical risks and domestic regulatory changes shape current market dynamics.
Foreign Flows Return to Indian Equities
Indian equities show a shift after foreign selling and earnings slowdown in 2026. Foreign Institutional Investors (FIIs) are returning, with domestic liquidity remaining strong. Corporate earnings, particularly in small caps, held up in Q1FY27. This marks a change from earlier in 2026, which saw geopolitical shocks and crude-driven inflation fears.
Indian IT recorded its first positive FII inflow this year, following a deep correction and attractive valuations. The Nifty IT Index gained 15% in three months, outperforming the main index's 3% rise. Investors view artificial intelligence (AI) as a growth driver, not a threat.
Stabilising technology spending and a shift to AI deployment also improve sentiment, according to analysis from Geojit Investments Limited.
Geopolitical Risks and Economic Impact
Global developments weigh on Indian markets, especially crude oil. Renewed concerns over the Strait of Hormuz closure rattled markets this month. Brent crude briefly exceeded US$90 per barrel, moderating later. A prolonged disruption would widen India's current account deficit, pressure the rupee, and increase inflation.
This would ultimately affect corporate profitability and household spending. India's trade deficit expanded to US$87 billion in Q1FY27, up from US$67 billion in Q1FY26. This demonstrates the economy's sensitivity to external pressures. FII interest focused on defensive earnings or attractive valuations.
Consumer services, healthcare, and consumer durables attracted significant inflows, reflecting confidence in India's consumption-driven growth, Geojit Investments Limited reported.
Domestic Policy and Inflationary Pressures
Domestic policymakers introduced a new debate area. The Reserve Bank of India's (RBI) draft proposal restricts Non-Banking Financial Companies (NBFCs). It would limit revolving credit facilities, such as flexi-loans and overdrafts. Most NBFC lending would require a traditional term-loan structure, where repaid principal could not be redrawn.
This measure aims to strengthen credit discipline. It could affect flexibility for Micro, Small, and Medium Enterprises (MSME), corporate, and unsecured lending. Market participants expect lenders to redesign products, anticipating limited disruption to credit growth. India's July Consumer Price Index (CPI) inflation accelerated to 4.45%, a 19-month high.
This exceeded the RBI's 4% medium-term target, though it remained within the mandated tolerance band. Food inflation stayed elevated at 5.52%, showing supply-side pressures. US inflation moderated to 3.4%, reducing aggressive near-term tightening by the Federal Reserve.
These trends support risk assets, but policymakers stress data-dependent approaches, according to Geojit Investments Limited.
Succession concerns at Tata Group caused a market sell-off this month. Differences between the Tata Sons Chairman and the Trusts sparked the move. Tata Group companies lost ₹43,000 crore in market capitalisation in one session. Long-term concerns for listed Tata companies appear unwarranted, as the group has deep management and strong governance.
Birla Group stocks also saw a one-off impact. This followed a 0.25% royalty payment introduction by group companies for brand use. The move surprised the market, marking a policy shift from traditional family stewardship. Such royalty arrangements are common among Indian family-owned groups.
The change will likely not materially affect the group's long-term outlook beyond 2026–27. For Asian investors, India's market remains sensitive to oil price shifts and domestic policy. The RBI's NBFC proposal requires close monitoring for its impact on credit access. Corporate governance issues, while causing short-term volatility, demonstrate resilience in major Indian conglomerates.
This article is journalism, not investment advice; consult a licensed professional before making financial decisions. Market data is indicative, may be delayed, and should be verified with your broker or exchange before use.
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