FIIs have been sustained buyers in the cash market and net bought equities worth Rs 40,145 crores cumulatively in the last 12 days. This is a major pivot in the overall strategy by foreign institutional investors, especially given India’s growing tension with Pakistan coupled with striking moves in the global markets. Several global and local factors are at play as we see a change in the FII approach towards India at the moment.
What helped the change in FII strategy?
Different factors have impacted the overall change in sentiment, when it comes to global allocations to Emerging Markets, especially India. The Q4 earnings have been more or less stable and met expectations. While there have be individual pockets of concern, the broad parameters are in line with popular expectation. This coupled with the latest economic data on growth, inflation and manufacturing trends have led to optimism about India’s resilience. Additionally, the expectation of further rate cuts by the RBI and the dollar’s continued weakness helped in strengthening India’s case on the global front.
Dr. VK Vijayakumar, Chief Investment Strategist, Geojit Investments pointed out that, “It is important to put this trend reversal in context. There are two major factors behind this reversal of FII strategy. One, President Trump’s announcement of 90-day pause in reciprocal tariffs led to recovery in global equity markets. In this recovery India outperformed. Two, the weakness in the dollar, halted and reversed the momentum trade towards US witnessed after Trump’s victory in the elections. FII inflows can remain stable, but will be constrained by the modest earnings growth of around 5% in FY25.”
Dollar weakness- A boon or bane?
The Dollar weakness is a key global development that has definitely helped turn the tide in India’s favour. The Dollar Index has been hovering around the 99-100 level fro the past few weeks and has come significantly off the January highs of 110 levels, down 8% in 2025. The rupee in the meanwhile also has been scaling fresh highs and wiped out its losses since Trump’s win in Novemenr, 2024.
The big overhang for the Indian markets
That said, most experts believe that the clouds of worry have not completely receded from Dalal Street. The growing tension between India- Pakistan continues to weigh on investor sentiment. After the heinous terrorist attack on tourists in Pahalgam, the Govt has undertaken some tough stances. This includes complete shut down on trade between the two countries and use of the the air space has also been restricted.
Market expert, Ajay Bagga highlighted that, “Indian markets are seeing a robust FPI inflow and continued domestic inflow which is helping the markets. However the big question is the nature of the Indian retaliation on Pakistan. A statement from Pakistan officials yesterday that an Indian attack was imminent in the next two days has heightened risk perceptions. There will be a sharp downward reaction to any military action by India on terror sponsor Pakistan. That is what is holding back Indian markets at present.”