India-US Trade Deal Ignites FII Buying Frenzy, Markets Rally Over 2%
Foreign institutional investors (FIIs) staged a remarkable comeback on Dalal Street this Tuesday, executing their most substantial single-day buying activity since October 28, 2025. This resurgence in foreign investment was directly fueled by the finalization of the long-anticipated India–US trade agreement, which significantly bolstered investor confidence across the Indian equity landscape.
Record Inflows Drive Market Performance
According to the latest data available from the National Securities Depository Limited (NSDL), FIIs purchased shares worth a substantial ₹5,426 crore on February 3. Simultaneously, domestic institutional investors (DIIs) contributed to the bullish momentum by acquiring shares valued at ₹345 crore. This combined institutional buying power propelled the Indian benchmark indices to surge over 2%, marking one of the most impressive single-day gains in recent market history.
Over the first three trading sessions of February, FIIs have recorded net purchases totaling ₹788 crore, as per NSDL figures. Should this trend persist throughout the month, February would represent the first month of net foreign inflows since October, signaling a potential reversal in the prolonged outflow pattern.
Trade Deal Optimism Fuels Investor Sentiment
Market analysts unanimously attribute this surge in buying interest to the widespread optimism generated by the recently concluded India–US trade pact. The agreement has effectively alleviated long-standing tariff concerns, providing a much-needed confidence boost to both domestic and international investors.
The breakthrough came when US President Donald Trump announced on Monday that the United States and India had successfully finalized the comprehensive trade deal. A key component involves reducing tariffs on Indian exports from 50% to 18%, thereby removing a significant overhang that had been weighing on the Indian stock market for months.
Seema Srivastava, Senior Equity Research Analyst at SMC Global Securities Limited, elaborated on the broader context: "Alongside the trade deal, strong domestic corporate earnings—particularly from the consumer and financial sectors—have reinforced the attractiveness of Indian equities. Lower input costs, stable currency trends, and moderating US bond yields have further supported the case for sustained foreign inflows."
Historical Context and Market Recovery
The current buying spree represents a dramatic shift from the previous year's trends. Throughout 2025, FIIs engaged in record selling of Indian stocks. NSDL data reveals that foreign investors withdrew a net ₹1,06,606 crore from Indian equity markets starting from early August 2025, including a substantial ₹35,962 crore in January alone. This exodus was primarily triggered by the US imposition of an additional 25% tariff on India, which elevated the effective rate to 50%. On an annual basis, FII outflows reached a historic peak of ₹1,66,286 crore.
Driven by sustained FII selling, a weakening rupee, and the stalled India-US trade negotiations, the Indian equity market largely traded within a narrow range over the past twelve months, significantly underperforming most global counterparts. The market's resilience during this challenging period was largely sustained by consistent support from domestic investors. According to a report from Motilal Oswal Financial Services (MOLS), DII equity inflows reached a record $90 billion in 2025, providing crucial stability.
Expert Outlook for February and Beyond
Market experts are cautiously optimistic about the sustainability of this positive trend. The prevailing base case scenario suggests that FIIs are likely to remain net buyers throughout February, supported by India's resilient macroeconomic environment, the budgetary emphasis on infrastructure development, and improving domestic demand indicators.
Srivastava reiterated that lower input costs, stable currency movements, and moderating US bond yields continue to bolster the argument for sustained inflows. However, she also issued a note of caution: "Risks remain in the form of global volatility, oil price fluctuations, and ongoing geopolitical tensions, any of which could rapidly alter market sentiment." She anticipates that financials, consumer goods, and infrastructure stocks will be the primary beneficiaries of continued FII buying.
Prashant Tapse, Senior Vice President and Research Analyst at Mehta Equities, shares this optimistic view. He believes the post-trade-deal environment will witness meaningful improvement in FII participation, though sustainability will ultimately depend on global macroeconomic conditions.
"The agreement reduces volatility backed by tariff uncertainty and instills confidence in the economy by improving growth visibility for key sectors such as IT services, pharmaceuticals, auto ancillaries, and specialty manufacturing. This strengthens India’s medium-term earnings trajectory, a critical input for FII asset allocation models," Tapse explained.
He further noted that, combined with reasonable market valuations following recent corrections and India’s relative growth premium compared to other emerging markets, the trade deal acts as a dual catalyst—improving both sentiment and fundamentals. "Net-net, the trade deal tilts the balance from risk-off to cautious risk-on, making net FII inflows in February 2026 more probable, though not yet decisively structural," he concluded.
Disclaimer: This analysis is for educational purposes only. The views and recommendations expressed are those of individual analysts or broking companies and not of Mint. Investors are strongly advised to consult with certified experts before making any investment decisions.
