Why are FPIs rushing back to Indian stock market despite global uncertainty?

After remaining net sellers during the first half of April, foreign portfolio investors (FPIs) shifted their stance towards the Indian stock market in the second half, remaining net buyers over the last eight consecutive trading sessions (April 15–25), pumping a cumulative ₹32,465 crore into Indian equities.

This reversal in sentiment has helped India's frontline indices — both the Nifty 50 and the Sensex — stay higher and outperform their Asian and Western peers so far in April. Both indices are up over 11% from their April lows. The resumption of inflows has also led to a sharp recovery in broader markets, with the Nifty Midcap 100 index gaining 14% from its April 7 lows, while its peer, the Nifty Smallcap 100, rallied even higher, advancing 17.5% during the same period.

What triggered the FPI U-turn in the Indian stock market?

The change in stance among overseas investors can be attributed to multiple factors, but the most significant reason could be the improvement in domestic fundamentals. The easing of inflation, multiple rate cuts by the RBI, and liquidity-enhancing measures such as the easing of LCR (Liquidity Coverage Ratio) requirements — which are expected to support credit growth and improve banks' financial health — have prompted overseas investors to rush back to the Indian stock market amid ongoing global trade tensions.

Although global brokerage firms have trimmed their growth forecasts for the Indian economy for the current calendar year — citing potential impacts from trade tensions — they continue to remain bullish on Asia's third-largest economy. Their optimism is rooted in factors like strong domestic demand, favourable demographics, and structural reforms that are expected to drive sustained growth.

In addition, trade talks between India and the US are gaining momentum, with US Treasury Secretary Scot Bessent remarking that “India is expected to strike the first bilateral trade deal with the US.”

There are also expectations that global manufacturing giants are seeking to further reduce their dependence on China, providing an additional boost to India’s growth outlook.

Recent media reports suggest that Apple is looking to make most of its iPhones sold in the United States at factories in India by the end of 2026 and is speeding up those plans to navigate potentially higher tariffs in China, its main manufacturing base. This indicates that the country could become a global manufacturing hub in the years to come.

Christopher Wood, global strategist at US-based investment banking group Jefferies, recommended that global investors increase their exposure to the Indian stock market and reduce holdings in US stocks amid uncertainties looming over global capital markets due to Trump tariffs.

Manoj Purohit, Partner & Leader, FS Tax, Tax & Regulatory Services, BDO India, said, “Amid a challenging global backdrop, marked by sluggish growth in major economies like the United States and China, India continues to stand out for its economic resilience. Forecasted to grow at a robust rate of 6% in FY 2025-26, India remains the fastest-growing major economy, making it a compelling destination for global investors."

Dr VK Vijayakumar, Chief Investment Strategist at Geojit Financial Services, outlined two key reasons behind the change in FPI sentiment. He said, "The sustained rise in the dollar — which had earlier triggered 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. Second, the steep decline expected in US growth this year will impact corporate earnings there, while the Indian economy is expected to remain resilient with growth above 6%, accompanied by a recovery in corporate earnings.”

Will FPI inflows continue to sustain in the near term?

Manoj Purohit expects FPI inflows 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 amid turbulent global events.

"All eyes are now on India’s stance regarding further negotiations on tariff agreements, which might direct the next few trading cycles in the coming weeks," he added.

Vinod Nair, Head of Research at Geojit Financial Services, said, “Foreign investors are likely to adopt a wait-and-watch approach in the near term to assess geopolitical tensions. Based on India's historical performance, the country has demonstrated strong resilience during geopolitical disruptions, given the buoyant nature of its domestic economy. For long-term investors, it would be wise to view any market corrections as an opportunity to accumulate quality stocks and sectors for long-term gains.”

Disclaimer: The views and recommendations given in this article are those of individual analysts. These do not represent the views of Mint. We advise investors to check with certified experts before taking any investment decisions.