A dramatic turnaround is unfolding in the Indian stock market, with foreign investors reversing their selling spree and injecting over ₹3,200 crore in just four days. But what's driving this sudden comeback?
After a period of intense selling, overseas investors have shifted gears, becoming net buyers and providing much-needed support to frontline indices. This shift in sentiment is a welcome relief for the Indian market, which had been grappling with concerns over rich valuations and relentless selling by foreign portfolio investors (FPIs) for several months.
The Comeback Story
FPIs, who were net sellers for three consecutive months up to September, have slowed their selling in October. Over the last four trading sessions, they have turned into net buyers, infusing a cumulative ₹3,289 crore into local equities. While this is a far cry from the sharp sell-off seen earlier, analysts are highlighting this change in stance as a positive development.
So, what's behind this buying spree?
Dr. VK Vijayakumar, Chief Investment Strategist at Geojit Investments Limited, sheds light on two key reasons for FPIs' return. Firstly, the valuation gap between India and other markets, which was significant earlier, has narrowed in recent weeks due to rallies in other markets and consolidation in the Indian market. This makes Indian stocks more attractive to foreign investors.
Secondly, the expected revival of earnings is a major factor. Vijayakumar explains, "The growth and earnings prospects for India have been revised upward by market experts. The GST cuts and the low-interest regime are expected to boost India Inc.'s earnings in FY27, and the market will soon start factoring this into prices."
But here's where it gets controversial...
The global market sentiment has taken a turn for the worse due to the resurgence of US-China trade tensions. President Trump's threat to impose 100% tariffs on imports from China and restrictions on critical US exports to China has cast a shadow over the future of global trade. According to Vijayakumar, FPI flows will depend on how this renewed trade conflict unfolds in the coming days.
The Indian stock market has had a challenging year, with muted returns due to various factors, including rich valuations, higher tariffs, and subdued performance by Indian companies. Meanwhile, key global markets have repeatedly hit record highs, driven by AI and chip-related stocks.
The FPI Exodus
FPIs have been on a selling spree, offloading stocks worth a whopping ₹1.56 lakh crore in 2025. In September alone, they withdrew ₹23,885 crore from Indian equities, extending their selling streak for a third straight month. The sell-off accelerated after the H1-B visa fee increase, which led to massive outflows from IT stocks.
This year's outflows are the second highest on record for the January-September period, second only to the exodus in 2022, when FPIs sold ₹1.97 lakh crore due to the Russia-Ukraine war, aggressive global rate hikes, and a surging US dollar. However, inflows resumed in late 2022 as markets anticipated US rate cuts, bringing down full-year outflows to ₹1.46 lakh crore.
Despite these substantial outflows, the Nifty is up 6.61% for the year and is on track for its 10th straight annual gain, thanks to sustained buying by domestic institutions. Domestic mutual funds and insurance firms have poured a record ₹5.9 lakh crore into equities, providing a much-needed boost to the market.
India's rebound after US President Donald Trump's announcement of global tariffs in April was short-lived. As other countries struck deals, the US imposed a 50% tariff on Indian goods, the steepest in Asia, triggering massive outflows and putting immense pressure on the local currency.
This story is for educational purposes only. The views and recommendations made above are those of individual analysts and broking companies, and not of Mint. We advise investors to consult certified experts before making any investment decisions.
