FOREIGN INVESTORS RETURN TO INDIA WITH $1.6 BILLION AFTER 3-MONTH EXIT - CAN THE RALLY HOLD?
Foreign portfolio investors (FPIs) made a strong comeback to Indian equities in October, reversing three months of selling with net inflows of $1.65 billion ( Rs 13,750 crore). The return of foreign money lifted sentiment on Dalal Street, but analysts remain cautious about whether the momentum will sustain.
Macro Strength, Valuation Comfort Drive FPI Buying
Cooling market valuations and improving corporate earnings supported the renewed buying interest. India’s robust growth outlook , aided by GST rationalisation, strong domestic consumption, and government push on manufacturing , continues to set it apart from other emerging markets.
"India remains one of the fastest-growing major economies, backed by solid macro fundamentals," said Ross Maxwell, Global Strategy Lead at VT Markets. "GDP growth is resilient, inflation is controlled, and policy support for infrastructure and manufacturing remains strong."
Auto sales underline the momentum:
- Tata Motors: 74,705 units in October vs 41,151 in September
- M&M: 66,800 vs 37,659
- Hyundai: 65,045 vs 35,812
"After outflows driven by valuation concerns, India is again relatively attractive compared to emerging markets struggling with slower growth and policy uncertainty," Maxwell added.
IPOs Turn into Key Entry Route for FPIs
While FPIs have been selective in secondary market buying, they have been aggressive in IPO participation, seeking long-term exposure at more reasonable valuations.
"Volatile global yields and currency swings are pushing investors toward IPOs, where pricing often looks more compelling," Maxwell observed. "This isn't just opportunistic , it reflects confidence in India's long-term earnings story."
Analysts agree that the shift shows tactical caution but structural optimism.
Trade Deal Hopes a Major Trigger
A key overhang for markets , the 50% tariff imposed by the US on India , may ease as both nations move toward a trade agreement. Expectations of a US-China deal also support emerging-market sentiment.
However, uncertainty looms given President Donald Trump’s unpredictable policy style.
"Markets are watching trade negotiations very closely," said Ajit Mishra, SVP-Research, Religare Broking. “A favourable deal could extend FPI inflows, while a negative outcome may hurt exports and sentiment.”
US-China Angle: Does It Threaten India's FPI Appeal?
Analysts largely dismiss fears that a US-China trade thaw could divert capital from India.
"India’s share in EM portfolios is still relatively low, and strong earnings and valuations matter more," said Mishra.
Maxwell echoed a similar structural perspective:
"Even if China sees a temporary sentiment bounce from a US deal, strategic global capital continues to diversify towards India , especially in sectors like financials, renewables, and consumer tech aligned with India's long runway for growth."
Will the Buying Momentum Continue?
Despite October’s inflows, FPIs remain net sellers for 2025, having pulled out nearly $15.97 billion ( Rs 1.4 lakh crore) earlier this year. Analysts caution against assuming a sustained recovery.
"October looks like a cautious return rather than a breakout trend," said Swatantra Bhatia, Partner, Forvis Mazars. “Stable inflation, supportive global rates, and strong earnings delivery will be key.”
Policy support could add further tailwinds:
- Potential RBI rate cuts in 2026
- Government’s PLI incentives
- Increased capex push in the upcoming Budget
Maxwell summarised the FPI mood:
"October inflows are both a vote of confidence in India's structural story and a tactical positioning amid global volatility. FPIs are leaning into India's long-term opportunity while staying measured in the near term."
India is re-emerging as a preferred FPI destination, backed by macro strength and earnings momentum. But global volatility, trade-deal outcomes, and policy signals will shape whether the foreign capital trend strengthens through the next quarter.
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2025-11-04T12:01:23Z
