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@dineshssairam

That’s not how Economics works.

First, the Risk-free Rate is not the Cost of Capital. There is an additional component, ‘Equity Risk Premium’ which is involved. In the US, even when the RfR is as low as 2%, Cost of Capital ranges from ~5%-15% (Source). In addition to this, FIIs usually need to add Country Risk Premium to their investments, which is currently 2.64% (Source).

Second, The International Fisher’s Effect will make sure that the Capital Gains are offset by Forex Losses.

In fact, the S&P BSE Dollex shows how FIIs earn on investing in S&P BSE SENSEX on Dollar terms: https://us.spindices.com/indices/equity/sp-bse-dollex-30

So, if a FII had invested in the S&P BSE SENSEX 5 years ago, he’d have made as little as a ~5% CAGR by today.

Investors cost of capital is irrelevant here. The cost of capital is of the company being valued.