India’s stock market resurgence is drawing global attention, as foreign institutional investors (FIIs) poured $1.39 billion into Indian equities this week, making it the top recipient of foreign inflows in Asia. This renewed interest follows months of outflows, indicating a potential shift in investor sentiment toward Indian markets.

According to Bloomberg data, foreign investors have been net buyers of Indian equities since March 20, accumulating $2.37 billion during this period. This comes after a massive selloff of $28.18 billion since September 2024.

India Outshines Other Asian Markets in FII Flows

While India led in FII inflows, several other Asian markets saw outflows:

• Taiwan recorded the largest outflow at $298 million, signaling weak investor sentiment.

• Malaysia ($161 million) and Thailand ($89 million) also faced declines.

• Vietnam ($32 million) and the Philippines ($64 million) continued their losing streak.

• Indonesia ($158.3 million) and South Korea ($118 million), however, joined India in seeing net positive inflows.

This strong capital inflow into India suggests that foreign investors are regaining confidence in Indian equity valuations, particularly as markets correct from recent peaks and become more attractive compared to the US and China.

Key Drivers Behind India’s Market Rally

1. RBI Liquidity Measures & Rate Cut Expectations

• The Reserve Bank of India (RBI) has been infusing liquidity into the banking system through Variable Rate Repo (VRR) auctions, USD/INR buy-sell swaps, and Open Market Operations (OMO).

• These measures have helped ease liquidity stress, improving investor confidence.

• Growing expectations of a rate cut in the upcoming Monetary Policy Committee (MPC) review in April have further supported FII inflows.

2. Cooling Equity Valuations Attracting Investors

• Following a correction in Indian equities, stock valuations have become more reasonable, making India a compelling destination for global funds.

• In contrast, US and Chinese markets continue to struggle, pushing investors toward emerging markets like India.

3. Strong Market Performance

• India’s benchmark indices have surged, with the Sensex and Nifty gaining 5.5% since March began.

• Broader markets have outperformed, with the BSE Midcap and BSE Smallcap indices soaring 9.8% and 11.1%, respectively.

Cautious Optimism: Is This Rally Sustainable?

While the FII inflow is encouraging, analysts remain cautious about long-term sustainability due to multiple global risks:

• Geopolitical Uncertainty: Ongoing global tensions, including potential trade wars and economic slowdowns, could impact investor sentiment.

• Sectoral Weakness: Some analysts point out weakness in key sectors, such as IT and export-driven industries, which could limit market upside.

• Trump’s Trade Tariffs: Concerns are rising over US President Trump’s proposed reciprocal tariffs, which could impact India’s trade and export-driven businesses.

Final Outlook

India’s robust FII inflows signal renewed investor confidence, supported by RBI’s liquidity measures, attractive valuations, and a strong stock market rally. However, global uncertainties, trade risks, and sectoral weaknesses remain factors that could impact market sustainability.

Investors should stay cautious and monitor global developments, but for now, India shines as a top performer in the Asian market landscape.

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