Crude, not rupee, holds key to FII flows; JM Fin flags $105 threshold

According to its analysis, past FII flows help predict the next month's USD/INR movement, but past movements in the currency do not predict FII flows.

Abhinav Ranjan New Delhi

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Brokerage firm JM Financial has said crude oil prices play a bigger role than rupee movements in determining foreign institutional investor (FII) flows into Indian equities.

“The rupee follows flows rather than leading them, and oil works as a threshold,” the brokerage said in a report. “Above about $105, FIIs sell; below about $90, they stop.”

Data showed that FIIs sold a net $14.9 billion in FY25, $21.9 billion in FY26 and $12.7 billion in FY27 so far ($17.7 billion with October 2026 MTD). Before this, FIIs had never sold for more than two consecutive years.

According to its analysis, past FII flows help predict the next month's USD/INR movement, but past movements in the currency do not predict FII flows.

JM Financial noted that GDP growth does not necessarily bring FIIs back. In Q1FY27, India's economy grew 7.8 per cent year-on-year, while FIIs sold $13.4 billion worth of Indian equities. Earnings growth has also recovered, but this has not yet translated into a turnaround in foreign flows.

On valuations, the brokerage said: “At a 5.8 per cent earnings yield (17.1x), valuation is supportive, but cheap is not enough.”

JM Financial said that the relationship between oil prices and foreign flows has also changed over time. Over 20 years, Brent had no meaningful link with monthly FII flows, which is why oil was often dismissed in flow models. The full-period figure hides two things: the relationship changed sign around 2021, and it is non-linear.

Before 2021, oil and flows rose together. The correlation of flows with the monthly change in Brent was +0.26 (2006–10), +0.20 (2011–15) and +0.35 (2016–20). Higher oil prices then meant stronger global demand and risk appetite, which also brought money to emerging markets.READ MORE: Can cutting LTCG, STCG revive FPI flows? JM Financial, Bernstein answer

Since 2021, however, the relationship has turned negative. Put the other way, a falling oil price goes with inflows. When oil rises because supply is threatened, India loses on the import bill and risk appetite

The brokerage said that FII flows turn negative when Brent crude rises above $75 per barrel and become severe above $105.

The 2026 shock: Brent, FII flows and the rupee

FII flows across Brent price ranges since 2016

- Below $60 (38 months): Average flows of $0.9 billion a month; 63 per cent of months saw net inflows

- $60-75 (44 months): Average inflows of $0.7 billion a month; 68 per cent of months saw net inflows

- $75-90 (31 months): Average outflows of $0.6 billion a month; 42 per cent of months saw net inflows

- $90-105 (9 months): Average outflows of $1.5 billion a month; 44 per cent of months saw net inflows

- Above $105 (7 months): Average outflows of $4.1 billion a month; only one month saw net inflows

Average monthly FII flows by Brent price zone

JM Financial said recoveries in foreign flows began when oil prices declined. The first large inflow during the 2022 recovery came in August, when FIIs invested $6.8 billion as Brent crude fell to $100 per barrel from $123 in June.

In 2026, the inflow months of July and August, when FIIs invested $2.5 billion and $2.4 billion, respectively, coincided with Brent crude prices in the $84-91 range. Flows reversed in September, when Brent rose to around $114 per barrel.

In March 2026, Brent crude prices rose 45 per cent, from $70.9 to $103.1 per barrel. FIIs sold a record $14.2 billion worth of Indian equities that month.

The rupee, which averaged 90.7 against the US dollar in February 2026, weakened to 92.8 in March, 93.6 in April and 95.6 in May.

“The sequence is oil first, the outflow in the same month and the rupee after it. The rupee’s fall came with the selling and after it, not before it,” JM Financial said.