After a hiatus of three months, Foreign Portfolio Investors (FPIs) have turned net buyers in the Indian stock market, injecting ₹8,100 crore, buoyed by optimism surrounding a potential trade deal between India and the United States. This significant inflow marks a positive shift in investor sentiment, potentially signaling renewed confidence in the Indian economy and its growth prospects.

The sustained selling pressure from FPIs over the past few months had been a cause of concern for market participants. Several factors contributed to this trend, including global economic uncertainties, rising interest rates in developed markets, and concerns about domestic policy. However, the recent change in stance suggests that FPIs are reassessing their investment strategies and finding renewed appeal in Indian equities.

The prospect of a trade agreement between India and the US appears to be a key driver behind this renewed interest. Such a deal could lead to increased trade and investment flows between the two countries, benefiting various sectors of the Indian economy, including manufacturing, technology, and agriculture. The potential for enhanced economic cooperation has instilled confidence among foreign investors, prompting them to increase their exposure to Indian stocks.

In addition to the India-US trade deal optimism, other factors may be contributing to the positive FPI flows. These include:

• Improving macroeconomic indicators: Recent data suggests that the Indian economy is showing signs of recovery, with indicators such as GDP growth, industrial production, and inflation trending in a favorable direction.
• Government reforms: The government's ongoing efforts to implement economic reforms, such as streamlining regulations, promoting investment, and enhancing infrastructure, are also boosting investor confidence.
• Attractive valuations: After the recent market correction, some Indian stocks may be trading at attractive valuations, making them appealing to foreign investors seeking long-term growth opportunities.

The sectors that have witnessed the most significant inflows from FPIs include financials, information technology, and consumer discretionary. These sectors are expected to benefit from the improving economic outlook and the potential for increased consumer spending.

While the recent FPI inflows are a positive sign, it is important to note that the market remains subject to global economic uncertainties and geopolitical risks. Any adverse developments in these areas could lead to renewed selling pressure from foreign investors.

Going forward, it will be crucial for the government and the regulators to maintain a stable and predictable policy environment to sustain FPI interest in the Indian stock market. This includes continuing with economic reforms, managing inflation, and ensuring fiscal discipline.

The return of FPIs as net buyers is a welcome development for the Indian stock market. It provides much-needed liquidity and can help to support market valuations. However, it is important to remain cautious and monitor global and domestic developments closely. The long-term sustainability of these inflows will depend on India's ability to maintain its economic growth momentum and attract foreign investment.