New Delhi: Foreign institutional investors (FIIs) are showing early signs of renewed interest in Indian equity markets as global stock markets face uncertainty over artificial intelligence (AI)-related investments. While it is too early to conclude that foreign investors have reversed their selling trend, recent trading activity suggests a possible shift in sentiment towards Indian equities.
During the four trading sessions ending October 30, foreign institutional investors were net buyers in the cash market on three occasions. Market analysts believe the development could signal improving investor confidence, although sustained buying will be necessary to confirm a meaningful turnaround in foreign fund flows.
According to market experts, a combination of favourable global conditions, attractive domestic valuations and improving economic indicators could be encouraging foreign investors to reconsider their exposure to Indian equities.
Dr VK Vijayakumar, Chief Investment Strategist at Geojit Investments Ltd, identified three major factors behind the improving sentiment.
The US Federal Reserve’s decision to hold interest rates has provided support to global equity markets. At the same time, valuations in the Indian market, particularly among large-cap stocks, have become more attractive following the recent correction.
However, the stronger domestic economic outlook could prove to be the most significant factor supporting investor interest.
Strong credit growth supports India’s economic outlook
India’s credit growth has remained robust, reflecting continued demand across key sectors of the economy. Bank credit grew by 19.1 per cent year-on-year in September, according to the figures cited by the analyst.
Credit growth to the industrial sector stood at 19.5 per cent, while lending to the services sector expanded by 28.3 per cent.
Analysts also pointed to signs of improvement in industrial capital expenditure (capex), suggesting that investment activity could gather further momentum in the coming months.
Another factor influencing global investment sentiment is the weakening of the AI-driven investment trade. Concerns and volatility surrounding AI-related stocks have affected global markets, potentially encouraging investors to reassess their geographical exposure.
The improvement in foreign investor buying has also helped the Nifty recover the 23,000 mark, according to market analysts.
FIIs continue to favour select sectors
Despite the recent buying activity, foreign investors have not returned uniformly across the Indian equity market.
FIIs have continued to reduce their exposure to large-cap financial stocks while selectively accumulating shares in the pharmaceutical and healthcare sectors. Certain digital platform companies have also attracted foreign investor interest.
This suggests that overseas investors are becoming more selective rather than making a broad-based return to Indian equities.
Foreign investor outflows remain a concern
The recent buying signals come against the backdrop of substantial foreign fund withdrawals from Indian markets.
FIIs reportedly sold around $59 billion worth of Indian equities in the 24 months leading up to September 2026. The figure increased to approximately $64 billion after accounting for October’s month-to-date outflows.
Rolling 12-month foreign investor outflows had already touched a record $40 billion in June 2026, highlighting the extent of sustained selling pressure on domestic equities.
According to a note by JM Financial Institutional Securities, a sustained return of foreign capital could depend on movements in crude oil prices and developments in global geopolitics.
The brokerage noted that the US midterm elections scheduled for November 3 and the trajectory of developments involving Iran could influence the timing of a meaningful recovery in foreign investment flows.
Can foreign investors sustain their return?
Foreign investors have maintained a prolonged selling streak in Indian equities. According to the figures cited in the report, FIIs recorded net sales of $14.9 billion in FY25 and $21.9 billion in FY26, with further outflows reported during October 2026.
Before this period, foreign investors had not recorded net selling for more than two consecutive years.
Although buying activity over the last few trading sessions has offered some encouragement, market participants are likely to watch upcoming FII flow data, crude oil prices, global interest rate expectations and domestic earnings trends before drawing conclusions.
For now, the improvement appears to be an early indication of changing investor sentiment rather than confirmation of a sustained reversal in foreign portfolio flows into Indian stock markets.