Jefferies’ Chris Wood cites 2 triggers for FPI return; one may unsettle retail investors

With FPI resuming selling domestic equities in March, and that with greater intensity, investors are wondering what could eventually bring foreign portfolio investors (FPIs) back to Indian shores. One way, as Christopher Wood of Jefferies said, foreign investors are most likely to return to India in size is a sharp correction triggered by a sudden cessation in domestic mutual fund inflows. 

This is certainly possible, in theory, Wood said in his latest GREED & fear note.   

He said mutual fund returns have been lacklustre even in rupee terms since the Nifty peaked in early January or the MSCI India peaked in late September 2024. But there remains a lack of evidence of any sudden sharp decline in flows into the Systematic Investment Plan (SIP) schemes where the average monthly contribution was Rs 30,500 crore ($3.4 billion) for the three months to January or only Rs 3,140 ($35) per account. 

"It is also the case that the big mutual funds see no signs of any such sharp reduction in flows based on discussions GREED & fear has had this week," Wood said.

Nifty has declined 5.8 per cent since peaking in early January, while the MSCI India is down 8.3 per cent in rupee terms since peaking in September 2024. Domestic equity mutual funds recorded net inflows of $51 billion in 2025 and $4 billion in January. 

The other trigger, Jefferies said, for a rotation back into India is a sudden conviction that the semiconductor cycle has peaked which for now remains lacking. 

Wood said the more the returns on the AI capex are questioned, and the more there is a question mark over the continuing willingness to finance that capex, the more it will become a real possibility that 2026 will mark the peak year for AI capex with. He noted that four major US hyperscalers have guided investors for an enormous $620 billion in capex this year.

"If timing the top tick in semiconductor stocks is perhaps the critical market timing issue for global emerging market fund managers this year, it is also clearly critical for an Indian stock market hoping for renewed foreign inflows," Jefferies said. 

Data showed that after selling Rs 22,615 crore worth equities in February, foreign investors have started March with Rs 17,570 crore of outflows, taking year-to-date outflows to Rs 30,917 crore.

Meanwhile, Wood said one additional positive for the Indian stock market from a flow perspective is flows into equities from the government-related National Pension System (NPS), which become significant in coming years. 

"They are already running at $1.4 billion a month compared with the $4 billion flowing into
equity mutual funds. NPS flows are projected to rise significantly in coming years. Meanwhile, where there has been a reduction in ownership of equities is investors reducing direct ownership of stocks," he said.