FPIs Show Strong Buying Momentum in Indian Equities in the Second Half of March

With ₹3,055 crore on Monday, ₹7,470 crore on Friday, and ₹3,239 crore on Thursday, FPIs continued to be net purchasers throughout the past three trading sessions, increasing the three-day cumulative gain to ₹13,746 crore.

Why are FPIs Returning to Dalal Street?

In March, foreign investors changed their approach to the world’s fifth-largest market, slowing their selling rate and becoming net purchases after withdrawing billions from Indian markets through exchanges. After months of being pushed by consistent outflows, this allowed the Indian stock market to relax.

They continued to be net purchasers over the past three trading sessions, contributing ₹3,055 crore on Monday, ₹7,470 crore on Friday, and ₹3,239 crore on Thursday, for a total inflow of ₹13,746 crore over the three days.

With the Nifty 50 and Sensex recording over 7% gains in March so far, their most significant monthly increase since June 2024, and the indexes turning green for CY25, this robust buying activity has provided much-needed joy to Indian markets.

With the Nifty Midcap 100 index up 10% and the Nifty Smallcap 100 index up 11% this month, the overall market rebound has been even more robust. Retail investors, one of the leading forces behind the extraordinary rise in domestic stocks since the Covid-19 epidemic, are feeling more optimistic now that the rally has come at a pivotal moment.

FPIs remained net sellers in March after reversing their negative outlook. They withdrew more than ₹3 lakh crore between October and February, which caused the Sensex and Nifty 50 to fall 15% from their peak values. FPIs last made a net purchase in September, when they invested ₹15,432 crore.

The U.S. Dollar Index has lost 6% of its value due to growing worries that the U.S. economy may slow down shortly due to intensifying trade disputes that Donald Trump started. Analysts say this has reduced capital inflows back into the United States.

The Federal Reserve also upheld its forecast of two rate cuts in 2025 last week. Foreign investors find emerging nations like India more appealing when U.S. interest rates are lower.

Expensive valuations have also been a significant factor in the recent mass selling of FPIs, which has caused them to turn their attention to other rising economies, such as China, where values are more affordable than in India.

Foreign investors are again interested in local stocks due to the protracted sell-off in domestic stocks, which has reduced valuations to more affordable levels.

A significant change in mood was highlighted by Harshal Dasani, Research Analyst at Invasset PMS, who ascribed the reversal in the selling tendency of Foreign Portfolio Investors (FPIs) in March 2025 to several variables.

He cited strengthening the Indian rupee, which gained 39 paise (1.2%) by mid-March, closing at 85.94 against the US dollar on March 24, 2025. He pointed out that this lowers currency risk and increases FPI returns.

U.S. Dollar Decline: Dasani also highlighted how the US Dollar Index (DXY) weakened from 110.4 in January to 104.1 in March, increasing the appeal of emerging economies like India to international investors.

Additionally, reasonable prices have contributed to the appeal of Indian shares, as seen by the Nifty 50’s P/E ratio lowering to 20.8 as of March 21, 2025.

Softening U.S. bond yields: Harshal also said that the allure of US debt instruments has been reduced due to cooling US bond yields, with both 10-year and 20-year Treasury yields falling from their January peaks. This has increased capital flows into markets with more significant growth rates.

Growing risk-on attitude: FPIs have been encouraged to reallocate toward India, which continues to benefit from good macroeconomic fundamentals and reducing inflation, by a supportive global risk-on mood fueled by impressive performances in China and Europe. Dasani claims that these elements, taken together, point to a strategic change by FPIs instead of a temporary action.

As prices reverted to long-term norms and early signs of a recovery in profit growth surfaced, value purchasing propelled a substantial rise in the domestic market, according to Vinod Nair, Head of Research at Geojit Investments Limited. In rate-sensitive industries like banking, NBFCs, auto, consumer durables, and real estate, increased government investment and projected monetary easing are expected to boost confidence and result in outperformance. Future PMI data, Q4 profit figures, and developments on reciprocal US tariffs will all be essential factors in determining how long this trend can last.