Foreign Institutional Investors (FIIs) have made a notable comeback to Indian equity markets in March and April 2025, marking a significant reversal from their aggressive selling seen earlier in the year. According to the National Securities Depository Ltd (NSDL), FIIs invested a net ₹10,558.97 crore in April (up to April 29) after putting in ₹1,717.78 crore in March.

This is in sharp contrast to the massive withdrawals seen in January (₹72,677.21 crore) and February (₹46,599.08 crore), indicating a potential shift in market perception and strategy by global funds.

On April 30, as per provisional NSE data, FIIs extended their buying streak to an eleventh consecutive session, adding another ₹50 crore worth of Indian equities to their holdings.

What’s Driving the FII Optimism?

According to Trivesh D of Tradejini, the turnaround in FII flows is primarily due to favourable global macroeconomic conditions. He cited:

• Softening US inflation

• Expectations of Federal Reserve rate cuts

• Rising risk appetite for emerging markets

These factors are making countries like India more attractive to global investors.

Domestically, the situation is equally encouraging. Trivesh adds that:

• India’s GDP is expected to grow at 6.5% in FY2025

• The rupee remains stable

• Policy continuity is expected after elections

• The Nifty’s valuation correction to its 10-year average P/E of 22x has made Indian equities more attractive

All these elements have boosted investor confidence and contributed to the recent uptick in FII flows.

Risk Factors Still Linger

While the recent flows are encouraging, experts are cautious. Potential headwinds for FII inflows include:

• Unexpected US rate hikes

• Geopolitical tensions

• Domestic inflation surprises

• Policy uncertainties

Additionally, profit-booking by FIIs could trigger temporary market corrections. However, strong Domestic Institutional Investor (DII) activity may cushion any short-term volatility.

DIIs Continue to Play a Stabilising Role

While FIIs are just beginning to re-enter the Indian market, Domestic Institutional Investors (DIIs) have consistently supported the market through robust investments.

• In March 2025, DIIs invested ₹37,585.68 crore

• In April 2025, DIIs added another ₹23,905.87 crore

For the calendar year 2025 so far, DIIs have invested a total of ₹2.1 lakh crore, compared to FIIs who have net withdrawn ₹1.07 lakh crore in the same period.

In 2024, the trend was also DII-favourable, with DIIs investing ₹5.23 lakh crore, while FIIs withdrew ₹8,001.16 crore from Indian equities.

DIIs Overtake FIIs in Equity Holdings for First Time in 50 Quarters

In a major milestone, DIIs now hold more Indian equities than FIIs, for the first time in over 50 quarters. According to ACE Equities data:

• DIIs hold around 16.91% of Indian equities

• FIIs’ share dropped to 16.84%, marking a multi-year low

This shift has occurred amid sustained DII confidence in India’s long-term growth prospects and relative volatility in FII behavior due to global risk factors.

Assets under custody further underline this shift:

• DIIs: ₹69.80 lakh crore

• FIIs: ₹69.58 lakh crore

April Marks Highest FII Inflows Since December 2024

April 2025’s ₹10,558.97 crore net FII inflow is the highest monthly inflow since December 2024, when FIIs had invested ₹11,085 crore. This indicates strengthening global sentiment and a more favourable macro backdrop for India.

Market experts believe this trend could persist if geopolitical tensions and rate hike concerns continue to ease. Many are now eyeing the upcoming monetary policy outcomes in the US and India as key indicators of sustained FII momentum.

SEBI Chairperson Confirms Global Investor Optimism Toward India

In a recent conversation with Moneycontrol, SEBI Chairperson Tuhin Kanta Pandey revealed that his interactions with FPIs in Washington DC, New York, and Boston reflected a very positive outlook for India.

He participated in high-level dialogues under the:

• Financial Stability Engagement Group

• IMF-IOSCO track

According to him, “There were very positive things about India in the meetings,” underlining the international community’s confidence in India’s growth story.

Over the last five years, foreign investors have pumped in $58 billion into Indian markets across equity and debt segments.

What Lies Ahead for FII-DII Dynamics?

The current data reflects a possible inflection point in foreign investor behaviour. If the macro indicators—both domestic and international—continue to remain supportive, FII flows could gain further momentum.

However, the role of DIIs as consistent market supporters will remain critical in maintaining market stability, especially in times of external shocks or FII volatility.

The election outcome, global rate cycles, and inflationary pressures will remain the key variables influencing future flows.

Conclusion

The return of FIIs to Indian equities in March and April 2025 signals a renewed global faith in India’s fundamentals. With strong support from DIIs and positive macroeconomic cues, the Indian equity market seems well-positioned for sustained growth.

However, investors must remain alert to external and internal risks, and the market trajectory will likely depend on a delicate balance between global cues and domestic policy stability.

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