After months of turning away from Indian equities, Foreign Portfolio Investors (FPIs) seem to be falling back in favour with the domestic markets. With net inflows of Rs 14,429 crore in May so far, already the highest in eight months, it’s clear the tide is beginning to turn. For a market battered by a mix of domestic uncertainty and global turmoil, this return feels like a long-awaited sigh of relief.
The change in sentiment hasn’t come out of thin air. A confluence of encouraging developments including the de-escalation in Indo-Pak tensions, whispers of a potential US-India trade deal, a weakening US dollar, and easing domestic inflation has helped flip the script from caution to cautious optimism.
“This surge in May marks the strongest inflow since September last year,” says Vaqarjaved Khan, Senior Fundamental Analyst at Angel One. “While the calendar year still reflects a net outflow of Rs 97,922 crore, the momentum seen in April and May signals that sentiment is beginning to thaw.”
Still, the road ahead remains far from smooth. On May 21, in a stark reminder of the volatility that continues to grip global markets, FPIs offloaded Rs 10,000 crore worth of Indian equities in a single day, spooked by a spike in US Treasury yields. Earlier in the month, renewed Indo-Pak tensions had also triggered sell-offs. These episodes underscore just how vulnerable FPI sentiment remains to external shocks.
“Foreign investment flows have been erratic, largely due to a mix of weak corporate earnings, global uncertainty, and slowing urban consumption,” Saurabh Patwa, Head of Research and Portfolio Manager at Quest Investment Advisors, explained. “On top of that, global pressures including fears of trade tariffs under a potential Trump presidency and volatile bond and currency markets have weighed heavily on decision-making among large international investors,” he added.
That said, Patwa also believes the worst may be behind us. “History shows that sharp FPI sell-offs are often followed by strong rebounds. And we’re beginning to see those early signs now. If India’s corporate earnings continue to meet or exceed expectations, the stage is set for a more sustained comeback,” he said.
Indeed, the macroeconomic backdrop is lending weight to this optimism. According to IMF data, India remains on the path to overtake Japan to become the world’s fourth-largest economy by the year end, with only Germany ahead. A robust domestic consumption base, coupled with the government’s push for self-reliance through manufacturing, has added structural strength to the economy’s long-term prospects.
The numbers on corporate performance add further confidence. Angel One estimates that India Inc's earnings could grow at a compound annual growth rate (CAGR) of 14–17% over the next 3–5 years which makes India an attractive destination for long-term capital. “Whenever valuations become attractive, FPIs tend to respond swiftly,” Khan highlighted, “just as we saw with the turnaround in April and May.”
Still, both analysts agree that caution remains warranted. Elevated US bond yields, geopolitical shifts, and any future earnings disappointments could quickly derail this recovery in FPI flows.
“Short-term uncertainties will persist,” Khan cautioned. “But for now, the long-term story for India remains compelling. What we’re seeing is not euphoric buying, it’s a measured, rational vote of confidence.”
As foreign investors inch back into Indian equities, the central question isn’t just whether this momentum will hold. It’s whether India can continue delivering on the promise that has long made it a favourite among global capital markets.
