After a prolonged period of net selling, Foreign Institutional Investors (FIIs) have turned net buyers of Indian stocks in the past week, with inflows totaling ₹1,350 crore. This reversal comes after FIIs offloaded over ₹155,000 crore worth of Indian equities in 2025. This shift in investment strategy has sparked considerable interest and speculation in the market, prompting analysts to examine the underlying reasons for this change.

Factors Influencing the Rebound

Several factors appear to have contributed to the renewed interest of FIIs in the Indian stock market:

• Rupee Appreciation: The recovery of the Indian rupee against the US dollar is a significant factor. Last week, the rupee strengthened to above 90 per US dollar following intervention by the Reserve Bank of India (RBI). A stable or appreciating rupee enhances dollar returns for FIIs and reduces their hedging costs, making Indian assets more attractive.
• Reasonable Valuations: Due to market consolidation and time-based correction, Indian equity valuations, particularly in large-cap financials and IT stocks, have become more appealing. These sectors are often preferred entry points for FIIs.
• Easing Global Bond Yields: A decline in US bond yields has also played a role. Lower US yields reduce the attractiveness of US bonds, increasing the demand for equities in emerging markets like India.
• Strong macroeconomic indicators: India stands out among emerging markets due to its stable macroeconomic indicators, controlled inflation, and consistent GDP growth projections.
• Government reforms: Ongoing reforms in finance, taxation, and trade have enhanced investor confidence. SEBI has simplified rules for foreign investors, streamlining registration and reporting. India has also improved its corporate governance standards and transparency.

FII investment strategies

FIIs are not indiscriminately buying but making focused bets, with their sector preferences indicating their view of India's future. Financial services have been the primary beneficiary of FII inflows in recent months. Reputed banks have seen renewed foreign interest, reflecting faith in India's financial sector resilience and growth prospects.

FII and DII Activity

On December 17, 2025, FIIs recorded net buying of ₹1,171.71 crore, while Domestic Institutional Investors (DIIs) added ₹768.94 crore. Simultaneous buying by FIIs and DIIs reflects confidence from both global investors and domestic institutions. DIIs have become increasingly important in absorbing FII selling pressure, making Indian markets more resilient.

Broader Market Context

The Indian stock market has been in consolidation mode this year, with benchmark indices lagging behind Asian and global peers. Besides tariff-related worries and an earnings slowdown, sharp selling by FIIs has plagued indices this year. FIIs have been net sellers of Indian stocks to the tune of over ₹155,000 crore in 2025 so far, largely influenced by a weak Indian rupee, steep tariffs, high valuations, and a slowdown in earnings.

Despite being net sellers of Indian equities worth ₹1.61 lakh crore in CY25, FIIs have selectively increased stakes in certain stocks, signaling targeted conviction. Around 125 BSE-listed companies saw steady FII buying over the last three quarters.

Cautions

It is important to note that FII activity can be influenced by various global factors, and past performance is not indicative of future results. Predicting FII movements involves analyzing historical trading patterns, monitoring global economic trends, and tracking interest rate and currency fluctuations.