The last 9 trading sessions have been significant in terms of the FII action in Indian markets. Foreign institutional investors have bought over Rs 34,000 crore in Indian markets. This has been the longest continuous buying spree by the foreign investors since last September, 2024.
The timing of this particular buying spree is interesting given the focus on the gobal and the local triggers at the moment. Dr. VK Vijayakumar, Chief Investment Strategist, Geojit Investments highlighted that “an interesting point in this reversal of FII strategy is that it has happened at a time of heightened India-Pak tensions following the Pahalgam terror attacks.”
So, what are the strong factors driving FII flows into India ignoring the geopolitical tension? Experts say the answer lies in two factors.
Two factors triggering FII trend reversal in India
The ongoing tension between India and Pakistan is no doubt a key worry. However, that apart there are some more triggers that determine the direction of global fund allocation. India’s relative growth resilience in the face of a weakening dollar and continuing worries about tariff impact ae perhaps key factors dictating flow trends at the moment.
Dollar weakness
The dollar has been trading sideways as US Treasury Secretary Bessent signalled progress in Trade talks with various Asian countries. The Dollar Index continues to be around the key 99 level.
Manoj Purohit, Partner & Leader, FS Tax, Tax & Regulatory Services, BDO India said, “Foreign investors have made a notable return to Indian equity markets, emerging as net buyers over the past two weeks. In just the last seven trading sessions, foreign portfolio investors (FPIs) have turned decisively positive on Indian equities. This shift is largely attributed to a weakening US dollar, revisit of tariff agreements and a renewed sense of optimism surrounding India’s economic trajectory.”
Dr Vijayakumar of Geojit added that, “The sustained rise is dollar which triggered the momentum trade towards US equities has reversed with the dollar index falling from a peak of 111 in mid-January this year to around 99 now. Two, the steep decline in US growth expected this year will impact corporate earnings in US while the Indian economy will continue to remain resilient with growth of above 6% accompanied by recovery in corporate earnings.”
Amid a challenging global backdrop, marked by sluggish growth in major economies like the United States and China, India continues to stand out with projections that the country may deliver a 6% GDP growth despite slowdown worries. As per the recent IMF projections, ‘India remains the only fastest growing economy making it a compelling destination for global investors.’
All eyes on US-India trade talks
The US Treasury Secretary Scott Bessent had indicated that one of the first deals to avoid tariff could be signed with India. This has no doubt lifted sentiment in the near-term. Purohit added that “FPI inflows are expected to remain strong in the near-term, providing additional support to the ongoing market rally. As global investors reassess their strategies, India’s economic fundamentals and earnings potential position it as a beacon of stability and growth in a turbulent events happening globally.”
All eyes now on India’s stance on further negotiation on tariff agreements which might direct the next few trading cycles in the coming weeks.