Are foreign investors returning to Indian equities? Here's what experts say

Foreign institutional investors (FIIs) are returning to Dalal Street as net buyers, ending their prolonged selling streak and driving a strong rally in the stock market.

Global funds have emerged as net buyers of Indian equities on a weekly basis for the first time since December, as optimism returns to the market.

Data compiled by Bloomberg shows that foreign investors purchased a net $515 million worth of stocks in the week ending March 21.

This influx, driven in part by passive flows linked to FTSE’s All World Index rebalancing, helped the NSE Nifty 50 Index erase its year-to-date losses.

While the inflows remain modest compared to the $15 billion in outflows seen since January, the shift in sentiment marks a positive turnaround.

The Nifty 50 is poised to record its first monthly gain in six months, supported by the Reserve Bank of India's liquidity measures and more attractive stock valuations after a steep selloff.

However, despite the recent gains, the index remains about 10% below its September peak.

Single-day inflows hit highest in four months

On Friday alone, foreign investors injected Rs 7,470 crore ($897 million) into Indian equities—the highest single-day inflow in four months.

Analysts attribute the renewed interest to improving macroeconomic indicators, fair stock valuations, and expectations of a tempered US trade tariff policy.

“Improving macros of the Indian economy and fair valuations have turned FIIs from sellers to buyers,” said Dr. VK Vijayakumar, Chief Investment Strategist at Geojit Investment Services.

He noted that the influx of funds has triggered a wave of short covering, further propelling market gains.

Global and domestic factors at play

Market experts believe the shift in foreign investor sentiment is driven by a combination of global and domestic factors.

One key catalyst is the expectation that the next round of US tariffs, set to be announced on April 2, will be less aggressive than initially feared.

“The next round of US tariffs could be more measured than previously suggested. This optimism is reflected in the buoyancy of US index futures,” said Devarsh Vakil, Head of Prime Research at HDFC Securities.

Additionally, the US Federal Reserve’s slower pace of quantitative tightening has eased global liquidity concerns, making emerging markets like India more attractive.

A weakening dollar and the resultant foreign inflows have also strengthened the rupee, which recently touched 85.97 against the US dollar, its strongest level in over two months.

Nifty 50 nearing 24,000 amid shifting global capital flows

The Nifty 50 has shown strong performance over the last ten trading sessions, nearing the 24,000 mark.

Market expert Ajay Bagga believes this momentum could be sustained as capital flows continue to shift away from the US

“The big change is that FIIs are moving towards inflows. Globally, the rotation has started on the margin,” Bagga told the Economic Times.

“Last year, if 80% of all equity investments were going into the US markets, it has now dropped to about 70%. Sentiment towards the US economy and policy-making has been eroded, though behaviour has yet to fully reflect this.”

As the global investment landscape diversifies, India is emerging as a beneficiary of shifting capital flows.

While the road to sustained foreign investor interest remains uncertain, the recent inflows signal renewed confidence in Indian equities.