FPIs Re-enter Indian Markets

Foreign investors are making a steady return to Indian equities, reversing part of last year’s record pullback and signalling renewed confidence in corporate earnings and policy stability.

After pulling money out for much of 2025, global funds have bought nearly $2.1 billion worth of Indian shares so far in February. If the pace holds, it would mark the strongest monthly inflow since June. The shift comes after a year when investors preferred artificial intelligence-driven markets such as the US, China, and South Korea.

Domestic investors had filled much of that gap in 2025. Backed by policy continuity and steady retail participation, they helped the MSCI India Index rise 8.1% last year. Even so, India lagged behind the broader region. The MSCI Asia Pacific Index surged 25% in the same period, leaving Indian equities trailing behind most Asian peers.

Why Are Foreign Investors Coming Back?

Part of the answer lies in valuations. Companies in the MSCI India Index are now trading about 4% below their five-year average price-to-earnings ratio, according to Bloomberg data. After a year of underperformance, India looks relatively cheaper.

There is also fresh policy comfort. A recently concluded trade deal with the US removed a key overhang for the $5.2 trillion Indian market. Investors say that clarity on trade ties has reduced uncertainty at a time when global capital is highly selective.

With nominal economic growth projected at around 10% in fiscal 2027, there is a belief that corporate earnings could expand by roughly 15%, potentially putting India back on the radar as a leading emerging market.

Are Earnings Supporting The Optimism?

Corporate performance is beginning to justify the renewed interest. Sales for companies in the FTSE India Index saw a year-on-year rise of 10% in the December quarter, while net income climbed 13%.

Looking further ahead, projections remain firm. Consensus estimates tracked by Nomura Holdings Inc. suggest that more than 250 Indian companies could deliver earnings growth of 16% in fiscal 2027. This improvement could be supported by a recovery in nominal GDP growth, a cyclical pickup in private capital expenditure, a potential revival in exports, and steady consumption demand.

Sector positioning reflects this cautious optimism. Financial stocks remain among the top picks for foreign investors. In recent months, funds have also increased exposure to metals and capital goods companies, as data from National Securities Depository Ltd. shows.

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Is This The Start Of A Structural Bull Run?

Not everyone is convinced. A sharp selloff in software and technology shares has erased more than $50 billion in market value this month, as investors reassess how artificial intelligence could disrupt traditional business models.

Some market participants argue that the recent buying may be tactical rather than structural. Softer US bond yields and improved relative appeal among emerging markets have encouraged short-term allocations. If global liquidity tightens again, flows could reverse just as quickly.

However, global positioning on India is gradually shifting back to neutral weight as valuations stabilise and earnings revisions improve.

For now, the return of foreign capital, combined with resilient domestic participation and firmer earnings expectations, suggests that India’s equity story is regaining balance, even if the next leg will depend on how growth and global liquidity evolve from here.

Sources

The Print

Economic Times