FPIs Return as Indian Stock Market Becomes Attractive

Foreign portfolio investors (FPIs) have made a strong comeback to the Indian stock market, reversing their bearish stance and injecting ₹32,576 crore in just six sessions. This influx of capital has significantly contributed to the Nifty 50’s 6.21% rally in March, making it one of the best-performing indices globally this month.

This sharp reversal comes after FPIs had pulled out ₹3 lakh crore between October 2024 and February 2025, citing high valuations and weak corporate earnings. Their return marks a shift in sentiment, boosting market confidence and driving strong gains across indices.

Factors Behind the FPI Turnaround

???? Valuations Became Attractive

With Indian stocks correcting 15% from their peak, valuations are now more aligned with fundamentals, restoring investor confidence. This has led to fresh buying interest, especially in large-cap and mid-cap stocks.

???? US Federal Reserve's Rate Cut Signals

The US Federal Reserve's March meeting maintained its outlook for two rate cuts in 2025, making emerging markets like India more attractive for foreign investors seeking better returns. Lower US interest rates typically reduce dollar strength and drive capital inflows into developing economies.

???? RBI’s Push to Attract More Foreign Investment

To further encourage foreign inflows, the Reserve Bank of India (RBI) is set to double the cap on individual foreign investor holdings in listed Indian companies to 10%. This move is expected to enhance liquidity and boost FPI participation in the coming months.

???? US Dollar Weakness and Global Trade Tensions

The US Dollar Index has fallen 6% from its recent highs, reducing capital outflows from India. Additionally, ongoing trade tensions initiated by Donald Trump have created uncertainty for US investments, prompting a shift toward emerging markets like India.

???? Easing Inflation and RBI Rate Cut Hopes

India’s inflation eased in February, increasing expectations that the RBI might cut interest rates in April to support growth. A potential rate cut would further improve market sentiment, making Indian equities even more appealing.

Nifty 50 Sees Best Monthly Gains in Eight Months

The Nifty 50 index has surged 6.21% in March, marking its biggest monthly gain since June 2023. In comparison:

• S&P 500 and Dow Jones fell up to 4% in March.

• China’s SSE Composite gained just 1%, while Hong Kong’s Hang Seng rose 2.18%—far behind Nifty’s performance.

Even broader markets saw a sharp rebound:

• Nifty Midcap 100 index jumped 11% in March.

• Nifty Smallcap 100 index soared 14% in the same period.

Conclusion: Will FPI Inflows Continue?

With improving macroeconomic conditions, attractive valuations, and potential RBI rate cuts, the Indian stock market appears well-positioned to sustain its strong momentum.

However, investors should keep an eye on global trade tensions, US Fed policy updates, and upcoming earnings reports, which could influence market trends in the coming months. If the current FPI buying spree continues, Indian equities could see further upside in Q2 2025.

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