Foreign Investors Flock Back to India, Fuel Stock Surge

Foreign investors pumped $1.8 billion into Indian stocks in just three days, signaling renewed interest in emerging markets like India amid dollar weakness and global uncertainty

Foreign Investors Flock Back to India, Fuel Stock Surge

A $1.8 Billion Comeback Signals Changing Global Sentiment

In a dramatic shift that’s electrified Indian markets, foreign institutional investors (FIIs) have made a powerful return, injecting nearly ₹15,000 crore (approximately $1.8 billion) into Indian equities over just three trading days. After nearly two weeks of continuous selling, this reversal has come as a bullish jolt for Dalal Street, lifting the Sensex by over 3,400 points—its sharpest three-day rally in recent memory.

This sudden turnaround has sparked optimism among analysts and investors alike, raising a critical question: Is this a fleeting rebound or the start of a broader reallocation of global capital toward India?

Dollar Weakness and India’s Growth Story Reshape Investment Flow

At the heart of this FII resurgence lie two key global triggers. The first is the falling U.S. dollar. With the dollar index dipping toward the 100 mark, the relative appeal of emerging market assets, particularly Indian equities, is on the rise. When the greenback weakens, investors tend to pivot toward higher-yielding assets in emerging markets, and India is looking especially attractive right now.

Second, India’s economic resilience stands in sharp contrast to the muted growth prospects in the U.S. and China. According to Dr. V.K. Vijayakumar, Chief Investment Strategist at Geojit Financial Services, India’s projected 6% GDP growth for FY26, despite global headwinds, positions the country as a standout performer. This macroeconomic strength is acting like a magnet for foreign capital, especially from funds that had recently trimmed their exposure to India.

Sectoral Bets Reflect Confidence in India’s Domestic Engine

Foreign investors aren’t just buying indiscriminately—they’re making strategic bets on India’s domestic demand story. Analysts observe a renewed interest in sectors driven by local consumption such as financial services, telecommunications, aviation, cement, selective auto companies, and healthcare. These sectors are viewed as less vulnerable to global volatility and more aligned with India’s structural growth.

Jitendra Gohil of Kotak Alternate Asset Managers echoes this view, noting that a continued drop in the dollar index could further reinforce FII appetite for Indian equities. “India remains one of the most resilient emerging markets, and if the macro indicators hold, this trend could gain momentum,” he said.

Rupee Gains as Capital Flows Turn Positive

The Indian rupee, often seen as a barometer of investor confidence, is also riding high. On Friday, it appreciated by 31 paise to close at 85.37 against the U.S. dollar—its strongest level since early April. This marks the fourth consecutive day of gains, buoyed by equity inflows and a broader “risk-on” sentiment among global investors.

Sumit Jain, Deputy CIO at ASK Investment Managers, believes the recent reversal in capital flows is more than a knee-jerk reaction. “There’s a structural story playing out here,” he explains. “While redemptions from emerging markets began in late 2024 after the U.S. election results, we’re now witnessing a slow stabilization. India, with its consumption-driven economy and strong fundamentals, is emerging as a favored pick.”

Still Early Days, But Sentiment Has Clearly Shifted

Despite this robust three-day buying spree, FIIs remain net sellers for the month, with April’s outflows still above ₹18,000 crore. But that might just be the setup for what’s next. Foreign holdings in Indian equities had dropped to multi-year lows, which means that current allocations are underweight. If sentiment continues to improve, we could be looking at a broader, more sustained rotation of global capital toward Indian markets.

Of course, the durability of this trend depends on several moving parts—how the U.S. dollar behaves, the trajectory of inflation in developed markets, and India’s ability to sustain its economic momentum.

Conclusion: A Promising Turn, But Watch the Global Winds

The renewed foreign interest in Indian stocks may not yet be a full-blown trend, but it’s a strong signal that global investors are re-evaluating their stance. With favorable macro indicators, a weakening dollar, and a compelling domestic growth narrative, India is increasingly viewed as a bright spot in an uncertain global economy.

While caution is still warranted—given global economic unpredictability—the mood on Dalal Street has clearly changed. For now, it’s the foreign investors setting the tone, and that could mean more gains ahead if the tide truly has turned.

Disclaimer:
The views and insights shared in this article are for informational purposes only and should not be construed as personalized financial advice or investment guidance. Market trends and economic conditions can shift unexpectedly, and individual circumstances vary. Readers are encouraged to seek advice from certified financial professionals before making any investment decisions. Neither the author nor the publisher assumes responsibility for financial outcomes based on the content presented here. Always invest with caution and awareness of potential risks.

source :  The Economic Times