Foreign Investors Make Strong Comeback to Indian Stock Markets
In a dramatic turnaround, foreign portfolio investors (FPIs) have returned to Indian equity markets with significant force during the first week of February, injecting over Rs 8,100 crore after three consecutive months of heavy selling pressure. This substantial inflow marks a complete reversal from the previous quarter's trend, where foreign investors had withdrawn nearly Rs 62,000 crore from Indian markets.
From Massive Outflows to Renewed Confidence
The recent investment surge represents a notable shift in sentiment following what had been one of the most challenging periods for foreign investment flows into India. Throughout 2025, foreign investors had pulled out a staggering Rs 1.66 lakh crore (approximately $18.9 billion) from Indian markets, driven by multiple factors including currency volatility, global trade tensions, and elevated stock valuations that made Indian equities appear expensive to international buyers.
According to the latest available data, foreign portfolio investors specifically invested Rs 8,129 crore during just the first six trading days of February. This stands in stark contrast to their behavior throughout January, when they withdrew Rs 35,962 crore from the market, continuing the negative trend that had persisted since November.
Key Factors Driving the Reversal
Market analysts point to several crucial developments that have helped restore foreign investor confidence. Himanshu Srivastava from Morningstar Investment Research India explained, "The sentiment was supported by easing global uncertainties, stability in domestic interest rate expectations, and optimism around India-US trade and policy developments."
The improved market environment has been further bolstered by the rupee's performance against the US dollar. After hitting a low of 90.30 against the dollar, the Indian currency has shown resilience and recovered some ground, settling around 90.70 by the end of the week. Financial experts now anticipate the rupee could strengthen further, potentially dropping below the 90 per dollar threshold by March, which would enhance returns for foreign investors converting their profits back to stronger currencies.
Budget Measures and Sectoral Benefits
The recent Union Budget for fiscal year 2026 has also played a significant role in attracting renewed foreign interest. The budget included substantial financial support measures and special benefits for various sectors of the economy, making Indian markets more appealing to international investors seeking growth opportunities. These policy initiatives have helped create a more favorable investment climate despite previous concerns.
Cautious Optimism Among Market Experts
While the February inflows represent a positive development, market experts maintain a balanced perspective. Vaqarjaved Khan from Angel One noted that strong corporate earnings and stabilizing global trade conditions could potentially attract additional foreign capital in the coming months. However, he also cautioned that several risk factors remain, including potential rupee weakness, persistently high stock valuations, and possible shifts in US monetary and trade policies that could limit future gains.
The return of foreign investors to Indian markets after such a prolonged period of selling represents a significant psychological boost for domestic market participants. It suggests that international capital recognizes the underlying strength of the Indian economy and is willing to re-engage despite previous concerns about valuation and currency stability.
As the financial year progresses, market observers will closely monitor whether this renewed foreign interest represents a temporary rebound or the beginning of a more sustained trend of capital inflows. The coming weeks will be crucial in determining whether foreign portfolio investors maintain their positive stance or revert to the cautious approach that characterized the previous quarter.
