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Indian markets continue to trade sideways as investors await clear global and domestic cues, with foreign institutional investors (FIIs) remaining net sellers despite strong fundamentals and resilient corporate earnings.

According to Dilip Bhatt, Founder of Padigree Advisory and a noted equity expert, the absence of AI-driven opportunities in India’s listed space could be one of the reasons behind muted foreign investor participation.

Bhatt noted that while the broader economy remains stable and sectors like auto, infrastructure, and real estate are driving growth, FIIs appear to be focusing more on markets that are offering higher exposure to artificial intelligence and next-generation technology.

“The market, in all its wisdom, always knows much more than what you and I will ever know,” he said, suggesting that FIIs may be reacting to signals not yet visible to domestic investors.

Indian equities have been witnessing range-bound movement in recent sessions. Bhatt believes the market is currently “waiting for direction”, as the recent rally seems to have lost steam without consistent FII support.

He cautioned that expecting a strong upside without foreign buying could be “overly optimistic”, adding that the market is unlikely to witness a major fall but may continue to move sideways in the near term.

“There’s a grim chance of a major fall now, but a clear breakout will need foreign inflows,” he said.

Bhatt pointed out that FII selling may stem from multiple factors, from rupee weakness to uncertainty around the India–US trade deal. He noted that FIIs might have access to better information or insights on global capital flow trends.

“AI stocks are dominating Wall Street right now, and since most Indian companies are non-AI, FIIs may not find India as attractive in the short term,” Bhatt explained.

Despite this, he highlighted the paradox that every major FII brokerage house still considers India a promising long-term investment destination, though current flows suggest a tactical pullback.

On the domestic front, Bhatt expects earnings to improve in Q3 and Q4 FY26, supported by the multiplier effects from the GST 2.0 reforms. “GST 2.0 is proving to be a good tailwind for companies,” he said, adding that how demand sustains under this new tax framework will be crucial.

For investors, Bhatt sees potential in Larsen & Toubro (L&T) and Tier-II private and PSU banks, which could benefit from ongoing infrastructure and capex growth.

Anubhav Maurya is a Senior Sub-Editor at Zee Business, focusing on the stock market, personal finance, corporate news, and related sectors.

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