Foreign Investors Are Back! Rs 23,000 Crore Floods Into Indian Market — Here’s Why

After a period of sustained outflows, foreign investors are making a roaring return to Indian equities, investing Rs 23,000 crore over five trading sessions as of March 25. This robust rebound in Foreign Institutional Investor (FII) activity began on March 18, when they turned net buyers for the first time in a month. Since then, FIIs have gone on a buying spree, making net purchases in four of the last five trading sessions.

The Turnaround: What’s Fueling the Surge?

Several key drivers are behind this strong FII comeback:

1. Favorable Global Cues: The US Federal Reserve’s dovish stance, suggesting a potential rate cut or pause, has encouraged capital to flow back into emerging markets like India.
2. Improved Domestic Landscape: Easing inflation, a firmer rupee, and better-than-expected macroeconomic indicators paint India a more positive picture.
3. Attractive Valuations: The recent market correction has made valuations appealing, prompting FIIs to take advantage of the lower entry points.
4. Short Covering Rally: On March 25 alone, FIIs net bought shares worth Rs 19,066.28 crore and sold shares worth Rs 13,694.71 crore. This session also witnessed widespread short-covering, with 101 out of 220 stocks in the futures and options (F&O) segment showing short-covering activity.

Market Reaction: Indices on the Rise

The infusion of foreign capital has already made its presence felt. Benchmark indices such as the Nifty 50 and BSE Sensex have seen an uptick, supported by financials, IT, and auto sector gains. Market breadth has also improved, with mid-cap and small-cap stocks participating in the rally.

Foreign Investors Sector Allocation

1. Financial Services – 36.56%

2. Information Technology – 12.13%

3. Oil Gas & Consumable Fuels – 10.57%

4. Fast Moving Consumer Goods – 7.42%

5. Automobile and Auto Components – 7.26%

6. Telecommunication – 4.42%

7. Healthcare – 3.98%

8. Construction – 3.84%

9. Metals & Mining – 3.74%

10. Power – 2.81%

11. Consumer Durables – 2.24%

12. Construction Materials – 2.07%

13. Consumer Services – 1.09%

14. Capital Goods – 1.01%

15. Services – 0.84%

 Source: www.niftyindices.com

Broader Trends: Net Selling Still a Concern

Despite the recent bullish activity, FIIs remain net sellers of Indian equities to the tune of Rs 1.49 lakh crore in 2025 so far. This selling pressure has been partially attributed to short-term strategies by hedge funds and portfolio reallocations to other emerging markets, particularly China.

However, the tide may be turning. According to Bay Capital, an India-focused investment firm, the sharp sell-off in previous months was likely temporary. They believe that as Indian markets stabilize and valuations normalize, FIIs could resume more consistent inflows in the coming months.

What’s Next For Foreign Investors

While optimism returns, market participants remain mindful of external risks such as geopolitical tensions, global monetary policy shifts, and commodity price volatility. Nevertheless, India’s strong fundamentals and improving investor sentiment provide a solid foundation for continued growth.

Conclusion

Over five sessions, the Rs 23,000 crore FII infusion marks a major turning point for Indian equities. It highlights India’s long-term investment appeal and signals a potential shift in foreign investor sentiment. India could witness sustained FII inflows yearly if supportive domestic and global conditions persist.

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