Foreign Portfolio Investors reversed their selling streak in July, turning net buyers of Indian equities with cumulative purchases worth ₹20,200 crore. According to NSDL data, this marks a significant shift from the previous four months of outflows. The equity inflows were distributed across two main channels, with ₹6,731 crore flowing through stock exchanges and ₹13,467 crore entering via the 'primary market and others' category. The latest inflow represents a sharp reversal from the preceding months when FPIs withdrew ₹49,340 crore in June, ₹32,963 crore in May, ₹60,847 crore in April and a massive ₹1.17 trillion in March. As per Mint, the July inflow marks a significant turnaround after foreign portfolio investors had aggressively reduced their exposure to Indian shares in the previous four months, with the surge attributed to appealing valuations, improving corporate earnings, and easing global headwinds.
The return of FPIs to buying Indian equities was among the key factors that drove benchmark indices up in July, with the Nifty gaining 2.17% month-on-month to close July at 24,383.60, extending gains for the second consecutive month. According to exchange and depository data, the buying spree was supported by ₹35,099 crore in purchases by domestic institutional investors (DIIs) and FPI short-covering of 83,297 Nifty and Bank Nifty futures contracts. However, till 31 July, the Nifty was down 7% and the 30-share pack was down over 8% so far this year. Net-net FPI inflow, including equities, debt, hybrid, mutual funds, alternative investment funds (AIFs) for July stood at ₹40,031 crore into the Indian financial market, as reported by Mint. Analysts expect stronger foreign cash inflows and further short-covering in index futures to power a rally back toward pre-war levels of 25,178.65, provided geopolitical tensions cool and the global AI trade continues to unwind.
India's stable macroeconomic conditions, healthy corporate earnings, stable RBI policy and rising concerns over lofty valuations of AI stocks lead foreign investors to the Indian markets. As per Mint, Ravi Singh, Chief Research Officer at Master Capital Services, noted that healthy macroeconomic indicators, positive corporate earnings, declining inflation, stable RBI policy, and the US Federal Reserve's decision to keep interest rates unchanged have boosted investors' confidence. VK Vijayakumar, Chief Investment Strategist at Geojit Investments, pointed out that FPIs turned heavy sellers in chip stocks last month due to concentration risks, but noted that "In the Indian market, there is no concentration risk like in South Korea and Taiwan. Therefore, the Indian market is becoming more attractive to FPIs." Harshal Dasani, Business Head at INVAsset PMS, highlighted that the drivers include crude in the low 80s, four months of valuation reset against the domestic floor, deliberate sector tilts toward consumer services, metals, and healthcare, and the Asia rotation out of the unwinding chip markets.
A notable trend emerging from the data is FPIs increasing their allocation to Indian mid-cap and small-cap stocks, driven largely by the higher growth potential these segments offer compared to large-caps, as reported by CNBC TV18. This shift toward smaller companies reflects growing confidence in India's broader market segments and suggests a more diversified investment approach by foreign institutional investors. The renewed interest in Indian equities comes amid easing pressure from the US dollar and expectations that US interest rates are near their peak, which have improved the investment environment for emerging markets.
Despite the turnaround in July, foreign investors have pulled out a net ₹2.87 trillion so far this calendar year, according to National Securities and Depository Ltd (NSDL) data, though domestic institutions, led by mutual funds, have net purchased ₹5.05 trillion shares over the same period, per BSE. Pabitro Mukherjee, Deputy Vice President-Research at Bajaj Broking, indicated that investors will closely track crude oil price movements and developments in US-Iran geopolitical tensions in the coming month. On the domestic front, the Q1FY27 earnings season and the RBI's monetary policy scheduled for August 5 will remain in focus for determining the trajectory of foreign flows. The momentum will largely depend on two key factors: oil prices settling around $80-85 per barrel being manageable for the Indian economy, and AI companies continuing to deliver strong earnings growth, as higher energy costs could increase India's current account deficit, fuel inflation, and pressure on corporate profitability.
