The past 6 trading sessions have been a milestone in their own way. FIIs have been net buyers everyday for the past 6 sessions. On March 27th FIIs bought as much as Rs 11,111.25 crore in a single session. Just to put in context FIIs bought Rs 12,611.79 crore in the entire month last September. In fact what FIIs bought in a single session yesterday was more than what they bought in two consecutive months last year- June and July. They bought a total of Rs 7,445.30 crore between June and July, 2024.
The key question then is what changed? What is fuelling the FII buying spree? Market experts that we spoke to listed out many factors that are helping the changing trend. Deven Choksey, Managing Director of DRChoksey FinServ explained that, “FII buying had to return. Given the fact that the rupee is appreciating, it is but natural to see the FIIs returning. The 3 Cs- Currency appreciation, crude price under control and consumption push is definitely helping lift sentiment. Moreover, the 2 important ‘I’s are showing encouraging signs- Inflation is cooling off and interest rates are coming down. All these factors is helping the optimistic outlook for India. As a result you are seeing FIIs back in action, buying in Indian equities.”
3 key factors supporting FII buying in March
The renewed buying by FIIs are on the back of a number of factors. These include
1. Short covering by FIIs
The markets have seen a steep rally in the past few weeks. A lot of it is on the back of short covering, predominantly by FIIs. According to market veteran Arun Kejriwal, “The current FII buying has more to do with the fact that they have been short in this series to a great extent and you are seeing significant short covering. Moreover, the market went up almost 1900 points- this rally was both steep and unprecedented. This kind of price movement also gave impetus to FII buying.”
Devarsh Vakil, Head of Prime Research at HDFC Securities added that, “We are initiating the April series with an unprecedented open interest of 1,145 crore shares in the stock futures segment. Foreign Institutional Investors (FIIs) have begun covering their short positions from the March series. 60% of their total outstanding positions remain on the short side, indicating potential for further short covering in the coming days—a development that bodes well for bulls. Furthermore, 80% of F&O stocks have exhibited long build-up or short covering, suggesting a positive bias for the April series.”
2. Rupee appreciation, dollar weakness
If we track historical data, FII selling picked up pace as the dollar began gaining strength around October last year. It is therefore, no surprise that the gradual weakness in the dollar is also making FIIs consider allocating money outside dollar-denominated asset classes. The Dollar Index is down nearly 5% from its January, 2025 highs of 110. The Index is hovering in the range between 103-104. This coupled with the strength in the rupee is no doubt making a case for India allocation. After the recent liquidity injection by the RBI amounting to Rs 1.9 lakh, the rupee has been on an upward trajectory. The rupee has successfully retained its rally from last week, holding above the 86 per dollar mark. Buying by foreign institutional investors in Indian markets also helped sustain the currency rally.
3. Improving economic parameters
Inflation is cooling off, interest rates are lower and all eyes are now on the upcoming RBI Monetary Policy Meeting between April 7-9. The overall expectation is that RBI will ease rates by 25 bps this time and we can see 75 bps rate over the year. This coupled with the push for consumption in the Budget is seen as a big positive in helping boost the economy. The monthly inflation print has also shown signs of significant cooling off.
The big worry now
That said market observers don’t rule out the possibility of another round of correction before the markets stabilise. According to them, clarity on US Tariff is a key overhang for the investors. Dr. VK Vijayakumar, Chief Investment Strategist, Geojit Investments, “Apart from the tariffs the market will be looking forward to the April 9th monetary policy and after that the Q4 results. The US PCE inflation data expected today may give an indication of the inflation trend in the US. But more important than that would be the inflationary expectations from Trump tariffs.”
Market expert Arun Kejriwal added that a definitive trend will only emerge after the announcements on April 2, “We have to however, wait and watch, to see how much of this is sustainable? All eyes are now on Donald Trump. Further direction for the markets can be determined once there is clarity on the exact nature of tariffs. I do not rule out scope for another correction,”