After one of the most prolonged phases of foreign selling in recent years, overseas investors have returned decisively to Indian equities. Foreign portfolio investors infused Rs 22,615 crore in February, marking the highest monthly inflow in 17 months and signaling a notable shift in global investor sentiment toward India.

This turnaround follows three consecutive months of heavy withdrawals, during which FPIs pulled out Rs 35,962 crore in January, Rs 22,611 crore in December, and Rs 3,765 crore in November. Cumulatively, foreign investors have withdrawn Rs 1.66 lakh crore from Indian equities in 2025 so far, underscoring how severe the earlier risk-off phase had been.

Depository data platforms</a> shows that February’s inflow was driven primarily by secondary market purchases rather than primary issuances. This suggests that global funds are repositioning portfolios rather than chasing new listings.

Several factors converged to trigger the reversal. Foremost among them was the interim trade understanding between India and the United States, which helped reduce uncertainty around tariffs and supply chain disruptions. Alongside this, domestic equity valuations had corrected from earlier peaks, making Indian stocks more attractive relative to other emerging markets.

Corporate performance also played a key role. Third-quarter FY26 earnings growth of about 14.7 percent reinforced the narrative that India remains one of the few large economies delivering consistent profit expansion despite global slowdown concerns. Strong earnings visibility is often a decisive factor for long-term institutional flows.

Market participants also point to improving trade diplomacy. India has concluded or progressed on multiple free trade agreements, including negotiations with the European Union and the United Kingdom. These developments signal structural integration into global supply chains, which foreign investors typically reward with higher capital allocation.

Sector allocation patterns reveal where confidence is building and where concerns persist. FPIs were aggressive buyers in financial services and capital goods stocks, sectors closely tied to domestic growth, infrastructure spending, and credit expansion. These segments benefit directly from rising investment cycles and government capital expenditure.

In contrast, the information technology sector saw continued selling, with outflows of Rs 10,956 crore. Concerns over artificial intelligence disruption, slower global tech spending, and uncertainty about large outsourcing contracts have weighed on investor appetite. The so-called “Anthropic shock” referring to rapid advances in generative AI capabilities has intensified fears about long-term revenue models for traditional IT services firms.

Currency stability also played a supporting role. A relatively steady rupee, trading below Rs 91 per US dollar, reduces exchange rate risk for foreign investors and improves dollar-denominated returns. Historically, periods of rupee volatility have coincided with sharp FPI exits, making currency stability a critical anchor for sustained inflows.

Looking ahead, analysts expect flows to remain cautiously positive in the near term, though not necessarily at February’s pace. Much will depend on fourth-quarter earnings and whether companies can deliver the projected earnings growth trajectory of around 15 percent for FY27. Strong profit expansion would reinforce India’s premium positioning among emerging markets.

However, global conditions remain uncertain. Ongoing conflict in the Middle East continues to influence crude oil prices and broader risk sentiment. A sharp spike in oil could widen India’s current account deficit, pressure the rupee, and potentially reverse foreign inflows. Emerging markets typically face outflows during periods of geopolitical escalation and commodity price shocks.