Foreign Investors Return to Dalal Street with Rs 33,487 Crore Infusion
Foreign portfolio investors (FPIs) have once again demonstrated strong confidence in Indian equities, injecting a substantial Rs 33,487 crore across 15 sectors during the first half of February. This robust buying activity represents the strongest fortnightly inflow witnessed since the second half of April 2025, signaling a renewed appetite for Indian markets among global investors.
Sectoral Breakdown: Capital Goods, Financials, and Oil & Gas Lead the Charge
The bulk of the foreign capital was strategically deployed into three key sectors:
- Capital Goods: This sector emerged as the top recipient, attracting Rs 8,032 crore between February 1 and 15. This marks a significant surge from the Rs 2,761 crore inflow recorded in January. Analysts attribute this momentum partly to the government's Rs 4,470 crore stake sale in BHEL. "The capital goods sector had previously underperformed the broader market, and the absence of any negative budgetary announcements provided a clear signal for global investors to reallocate funds," explained Siddarth Bhamre, Head of Research at Asit C Mehta Intermediates.
- Financial Services: Witnessing a notable turnaround, this sector received Rs 6,175 crore in inflows during the fortnight, a stark contrast to the Rs 8,592 crore outflow it experienced in January. According to Rajesh Singhla, CEO & Fund Manager at Alpha AIF, strong third-quarter earnings from banks and financial institutions likely bolstered investor interest, even as sector valuations remain a point of caution.
- Oil & Gas: Foreign investors also showed keen interest, purchasing Rs 4,678 crore worth of shares in this sector.
Rajesh Singhla further highlighted that the US-India trade deal framework announced in early February provided a significant sentiment boost, particularly benefiting sectors like capital goods, textiles, and gems & jewellery, thereby aiding in attracting foreign capital.
The IT Sector Exodus: AI Fears Trigger Massive Outflows
Despite the broad-based buying, the fortnight was not without its losers. Overseas investors continued their exit from several sectors, offloading a total of Rs 13,812 crore across eight sectors. The information technology (IT) sector bore the overwhelming brunt of this selling pressure.
- IT alone accounted for more than Rs 10,000 crore of the total outflows.
- The sector has been under sustained pressure throughout 2025, with nearly Rs 75,000 crore worth of shares sold off so far—the highest among all sectors.
- The primary driver behind this exodus is growing concern that AI-led disruption could severely impact the future outlook for software services exporters.
"Fears that artificial intelligence could make the IT sector less labour-intensive have the potential to spark further selling," cautioned Siddarth Bhamre. "We are observing a clear shift in allocation from services-oriented sectors to pockets within the real economy during this period."
Market Performance Reflects the Diverging Trends
The contrasting fortunes of these sectors are vividly reflected in market indices. The Nifty IT index has declined nearly 15% year-to-date, starkly underperforming the benchmark Nifty, which has seen a comparatively modest drop of 2.6%.
However, some market experts believe the reaction may have been overdone. Rajesh Singhla offered a counterpoint, suggesting, "The foreign selling in IT stocks was primarily driven by fears of declining earnings due to the looming threat of AI disruption. However, a significant portion of this selling appears to be sentiment-driven, and the scale of the sell-off might constitute an overreaction."
This fortnight's activity underscores a pivotal reallocation by foreign investors, moving capital towards traditional industrial and financial sectors while retreating from technology services amid transformative technological anxieties.
