Discover what’s driving FPIs back and what it means for the future of India’s markets
India’s equity markets have recently attracted renewed interest from foreign portfolio investors (FPIs), marking a significant change in trend after months of net outflows. In May alone, FPIs have pumped in ₹18,620 crore, a strong sign of restored confidence. This surge builds upon April’s inflow of ₹4,223 crore, which was the first monthly net investment seen since the start of 2025.
This reversal is notable considering the sharp outflows in the initial months of the year. According to data from depositories, FPIs pulled out ₹78,027 crore in January, ₹34,574 crore in February, and ₹3,973 crore in March. These numbers add up to a total outflow of ₹93,731 crore during the first quarter of 2025. The inflows in April and May have helped to offset some of these losses and indicate a possible change in sentiment towards the Indian market.
The recent buying activity suggests that foreign investors are regaining faith in India’s economic and corporate strength. Several factors contribute to this optimism, including India’s steady economic growth, supportive monetary policies, and encouraging corporate earnings. Global risk sentiment also appears to have improved, further boosting foreign investor confidence.
Economic Growth Outlook
India’s economy has been growing at a healthy pace, with strong domestic demand and improving investment activities. This robust growth outlook is a key reason why FPIs are showing renewed interest. Unlike many other economies facing slowdowns, India’s economic fundamentals appear strong. The country’s focus on infrastructure development, digital economy, and consumption has created a positive environment for growth.
The government’s continued push for reforms, such as easing business regulations and promoting Make in India initiatives, has also contributed to a more attractive investment climate. These structural changes are expected to support economic expansion and boost corporate earnings in the medium to long term.
Monetary Policy Support
The Reserve Bank of India (RBI) has played a crucial role in stabilizing the market environment by maintaining an accommodative monetary policy stance. While keeping a close watch on inflation, the RBI has adopted measures to support growth through manageable interest rates and liquidity management.
This balance between controlling inflation and fostering growth creates a stable environment that global investors find reassuring. A predictable policy environment reduces uncertainty and encourages investment flows, making Indian markets an appealing destination for FPIs.
Corporate Earnings Strength
Corporate earnings, particularly in sectors like banking, information technology (IT), capital goods, and manufacturing, have demonstrated resilience despite global challenges. Banks have benefited from improving asset quality and higher credit growth, while IT companies continue to gain from strong global demand for digital services.
The manufacturing and capital goods sectors are showing signs of recovery, driven by increased domestic consumption and export opportunities. These positive earnings trends reinforce the belief that Indian companies are well-positioned to deliver strong financial performance in the coming quarters.
Global Risk Sentiment and Market Valuations
Global risk sentiment plays a major role in shaping FPI flows. Recent improvements in geopolitical stability, easing concerns over inflationary pressures in major economies, and optimism around global trade have contributed to a more positive outlook.
In addition, valuations of Indian equities have become attractive relative to other emerging markets and developed economies. This valuation appeal, combined with strong fundamentals, has made Indian markets a preferred choice for foreign investors seeking growth and diversification.
Challenges and Risks Ahead
Despite the current positive momentum, several challenges remain that could influence FPI flows in the near future. Inflationary pressures globally, geopolitical tensions, and potential changes in US Federal Reserve policy could impact investor sentiment. Any sharp rise in interest rates abroad might lead to capital outflows from emerging markets, including India.
Furthermore, domestic challenges such as fiscal deficits, banking sector vulnerabilities, and global commodity price volatility could pose risks. Continuous monitoring of these factors will be crucial to maintaining the confidence of foreign investors.
Will FPIs Continue to Back Indian Markets?
The recent ₹18,620 crore inflow in May reflects a strong vote of confidence from FPIs in the Indian economy and equity markets. This trend is supported by a robust growth outlook, an accommodating monetary policy, resilient corporate earnings, and improved global risk sentiment.
If these factors continue to hold, FPIs are likely to maintain or even increase their investments in Indian markets. Sustained foreign inflows can help improve liquidity, stabilize markets, and reduce volatility, which benefits all market participants.
However, ongoing vigilance is necessary given the external and internal risks that could affect sentiment. The ability of Indian policymakers and companies to navigate these challenges will play a key role in sustaining foreign investor interest.
India’s equity markets have demonstrated resilience and attractiveness to foreign portfolio investors after a period of significant outflows. The ₹18,620 crore inflow in May marks a positive turnaround, supported by strong economic fundamentals, policy support, and solid corporate performance.
While some risks remain, the overall environment is conducive to continued foreign investment. This renewed FPI interest can provide much-needed momentum for the markets and contribute to India’s long-term growth story.
In summary, the recent boost in foreign inflows is a clear signal that Indian markets are regaining favor among global investors. The continuation of this trend depends on maintaining macroeconomic stability, delivering strong corporate earnings, and managing global uncertainties effectively.
