FIIs Return To India With Rs 32,465 Crore Investment Surge Amid Cross-Border Tensions

Foreign Institutional Investors (FIIs) are making a comeback to India after a prolonged withdrawal that started in late 2024.

Despite ongoing geopolitical tensions, recent FII strategies in India reflect a major shift.

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Over the past eight days, FIIs have consistently purchased in the Indian market, with total investments reaching Rs 32,465 crores, reported News18.

This change aligns with heightened India-Pakistan tensions following the Pahalgam terror attacks.

Dr VK Vijayakumar, Chief Investment Strategist at Geojit Investments Limited, attributes this shift in FII behaviour to two key factors. Firstly, the sustained rise in the US dollar, which previously fuelled momentum trading towards US equities, has reversed. The dollar index dropped from a high of 111 in mid-January to approximately 99 now, he noted.

Secondly, he explained, an expected slowdown in US economic growth is likely to affect corporate earnings there, while India's economy remains robust, with growth exceeding 6% and corporate earnings on the mend.

Optimism for New Financial Year

Manoj Purohit, Partner & Leader of Financial Services Tax at BDO India, commented on Foreign Portfolio Investor (FPI) inflows at the start of the new financial year. Despite net inflows being negative this week, there is considerable optimism for both India and FPIs due to the recovering market.

India's Economic Prospects

India's robust economic outlook, policy reforms, and resilient market make it a compelling destination for global capital. Recent reciprocal tariffs imposed by the US on Indian goods are relatively minor compared to those on other Asian nations, giving India a competitive advantage. This creates promising export opportunities for the country, Purohit remarked.

Purohit highlighted that India remains one of the world's fastest-growing economies, boasting a vast consumer market, skilled workforce, and a government dedicated to business-friendly reforms. The government's emphasis on infrastructure, digital advancement, and improving the ease of doing business further bolsters investor confidence.

"The Reserve Bank of India's decision to maintain unchanged limits on corporate bonds and government securities for FPIs signals the government's commitment to keeping the door open for offshore investors to continue injecting funds into the Indian market," he added.

Investment Opportunities and Challenges

Purohit noted that trade diversification and strategic partnerships are opening new investment avenues. While tariffs may present short-term hurdles, India's strong economic fundamentals ensure it remains an attractive destination for long-term investments, even in risk-averse climates.

"The Indian economy is well-equipped to weather temporary challenges stemming from macroeconomic shifts and domestic issues such as high valuations, constrained earnings, and rising inflation costs," he concluded.