Foreign Investors Return to Indian Equities with Strong February Inflow
Foreign portfolio investors (FPIs) have made a significant comeback in the Indian stock market, infusing a substantial Rs 22,615 crore into Indian equities during February. This marks the highest monthly inflow in 17 months, according to depository data reported by PTI. The robust investment follows three consecutive months of heavy selling, where FPIs withdrew Rs 35,962 crore in January, Rs 22,611 crore in December, and Rs 3,765 crore in November.
Catalysts Behind the Turnaround
Market experts attribute this positive shift to several key factors that have renewed foreign investor confidence. Vinit Bolinjkar, Head of Research at Ventura, highlighted that the inflow reflects "renewed foreign confidence post-2025 outflows." Javed Khan, Senior Fundamental Analyst at Angel One Ltd, identified three primary catalysts supporting the revival:
- India-US trade agreements
- Correction in market valuations
- Strong corporate earnings performance, with Q3 FY26 earnings growing 14.7%
Varun Gupta, CEO of Groww Mutual Fund, also linked the inflows to improving earnings momentum and moderating valuations. He noted that early signs of easing global trade uncertainty, alongside India concluding multiple free trade agreements including with the EU and UK, have helped improve investor sentiment.
Sectoral Trends and Investment Patterns
The February inflow represents the strongest investment since September 2024, when FPIs had invested Rs 57,724 crore. Sectoral analysis reveals distinct patterns in FPI activity:
- FPIs turned aggressive buyers in financial services and capital goods stocks
- They continued to reduce exposure to information technology companies, with the IT segment witnessing outflows of Rs 10,956 crore
VK Vijayakumar, Chief Investment Strategist at Geojit Investments, explained: "FPIs had sold heavily in IT stocks due to the Anthropic shock and continued weakness in the segment. However, they turned buyers in financial services and capital goods."
Overall 2025 Context and Future Outlook
Despite the February rebound, the overall foreign flow picture for 2025 remains negative. FPIs have pulled out a net Rs 1.66 lakh crore (USD 18.9 billion) from Indian equities amid currency volatility, global trade tensions, concerns over potential US tariffs, and previously stretched valuations.
Looking ahead, analysts expect flows to remain supportive but cautious. Khan anticipates March inflows to stay positive, noting that upcoming Q4 earnings will be crucial in determining whether 15% earnings growth in FY27 is achievable. Stability in the rupee below Rs 91 against the dollar also provides comfort to foreign investors.
Vijayakumar added that FPIs may adopt a wait-and-watch approach before significantly increasing allocations to emerging markets, though improving GDP growth prospects and healthy corporate earnings expectations for FY27 support medium-term inflows. He also cautioned that the ongoing Middle East conflict remains a key monitorable, particularly for its potential impact on crude oil prices and currency movements, which could influence investor sentiment going forward.
