Rs 20K cr in 2 months! FIIs back but will they stay long enough?

In just two months, foreign institutional investors ( FIIs) have pumped in over Rs 20,000 crore into Indian stocks, their most aggressive buying spree since September. May alone has seen inflows cross Rs 16,000 crore, signaling a stunning reversal in sentiment. But even as the bulls cheer, the question lingers: is this comeback built to last?

"This is the highest level of FII buying we've seen in eight months,” says Vaqarjaved Khan, Senior Fundamental Analyst at Angel One. “Better-than-expected corporate earnings, a weakening US dollar, easing Indo-Pak tensions and the prospect of a US trade deal have all come together to fuel this surge.” The impact of dollars is clearly felt on the market where the Sensex has jumped about 10,000 points from April lows.

Yet, the optimism is far from unchallenged. On May 21st, India witnessed a brutal FII selloff worth Rs 10,000 crore in a single trading day, driven by a spike in US Treasury yields and geopolitical jitters. “In the near term, there can be some headwinds… but the long-term outlook for India continues to remain intact,” Khan adds.

Despite the rebound, India still faces net FPI outflows of over Rs 96,000 crore in calendar 2025. January was a bloodbath, with Rs 78,027 crore pulled out — the worst in recent memory. While the selling cooled to Rs 4,000 crore by March, it was only in April that the tide truly turned, turning positive — a trend that has accelerated through May.

Supporting the renewed appetite for Indian equities, Bank of America’s latest Asia Fund Manager Survey shows India has now displaced Japan as the most preferred equity market in Asia, with 42% of fund managers overweight in India. Japan follows at 39%, while China — once the pariah — has staged a surprise recovery to third place.

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But this shift in global portfolio preferences is not without its skeptics. CLSA recently warned that India’s “safe haven” status may be at risk amid a thaw in US-China tensions and improved regional geopolitics. “The rise in these fears made India a hiding place and second-best performing market since March,” the brokerage said, hinting that the FII love may be fleeting.

The evolution of India's investor landscape is another dynamic at play. “In the last one month, both FIIs and DIIs have been buyers,” observes Siddhartha Khemka of Motilal Oswal, highlighting an unusual alignment between the two camps. “Usually, when FIIs buy, DIIs sell, and vice versa… but now a third front has emerged — the individual Indian investor. They stepped in when both institutions were selling.”

Saurabh Patwa, Head of Research at Quest Investment Advisors, remains cautiously optimistic. “Early signs of renewed interest have emerged… India’s position as one of the fastest-growing major economies remains a key attraction. If corporate earnings align with market valuations, we could see sustained capital inflows.”

And the fundamentals are hard to ignore. Corporate earnings over the next 3-5 years are expected to grow at a compounded rate of 14–17%, a powerful tailwind for foreign capital.

Still, storm clouds loom. Rising US bond yields, any potential slowdown in India Inc.’s earnings momentum, and renewed geopolitical shocks could derail the fragile resurgence in FII sentiment. The market’s current question is not whether the FIIs are back but it's how long they're here for.

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