Foreign Portfolio Investors Return To Indian Equity Markets After Months Of Outflows

After eight months of heavy outflows, foreign portfolio investors (FPIs) significantly increased their investments in Indian equity markets in May, reaching the highest levels since September 2024.

This rebound comes amid easing Indo-Pak tensions, prospects of a US-India trade deal, a weakening US dollar, and better-than-expected corporate earnings.

FPIs Buy Rs 19,860 Crore In May; Ownership Edges Up

According to data from the National Securities Depository Limited (NSDL), FPIs purchased equity worth Rs 19,860 crore through exchanges during May.

This continued the change in strategy that began in April, resulting in a marginal 12 basis points increase in FPI ownership of listed Indian companies, now standing at 17.5 per cent sequentially.

Earlier in 2025, FPIs were net sellers, withdrawing Rs 78,027 crore from stocks in January alone, coinciding with the dollar index hitting a peak of 111.

Between October 2024 and March 2025, foreign investors pulled out a substantial Rs 2.16 lakh crore from Indian equities.

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However, April saw a turnaround with FPIs buying Rs 4,223 crore.

Total FPI inflows into both equity and debt markets reached Rs 30,950 crore in May, with debt inflows accounting for Rs 12,155 crore.

This follows a heavy Rs 29,044 crore inflow into debt in March. Despite these gains, the overall FPI outflow from equities for 2025 remains at Rs 92,491 crore so far.

Global And Domestic Factors Boost Inflows

A leading research firm attributes the inflows to a combination of global and domestic factors.

These include a weakening US dollar, slowing economies in the US and China, alongside strong domestic GDP growth, and declining inflation and interest rates.

India’s impressive 7.4 per cent GDP growth in the fourth quarter of FY25 indicates a rebound, which may stimulate corporate earnings in FY26.

Short-Term Volatility Persists Amid Long-Term Optimism

While FPIs are likely to maintain investment interest in India, valuations at current elevated levels may prompt intermittent profit-taking.

For instance, on 21 May alone, FPIs sold Rs 10,000 crore worth of Indian equities, driven by renewed Indo-Pak tensions and rising US Treasury yields.

Vaqarjaved Khan, senior fundamental analyst at Angel One Ltd, warns of potential short-term headwinds due to geopolitical uncertainties.

Nevertheless, he remains confident in India’s long-term growth trajectory, noting that markets continue to factor in strong economic fundamentals.

FPI Ownership Trends And Sector Exposure

NSE data shows FPI ownership in NSE-listed companies declined steadily from March 2023, except for a brief rise in September 2024.

This trend reversed slightly in March 2025, with ownership increasing by 12 basis points quarter-on-quarter, particularly due to gains in private banks where FPIs hold significant stakes.

Excluding financial stocks, FPI ownership dropped by 26 basis points to a 13-year low of 15 per cent.

Meanwhile, FPIs increased their exposure to microcap companies, with their share in firms outside the Nifty 500 reaching a 10-quarter high.

Their holding in the Nifty 50 remained flat at 24.3 per cent but fell 28 basis points in the Nifty 500 to 18.5 per cent.

Emerging Markets See Positive FPI Flows; India Leads

May saw positive FPI inflows across key emerging markets, including Brazil, Indonesia, Malaysia, the Philippines, South Korea, Taiwan, and Vietnam, with India among the top recipients.

The only exception was Thailand, which experienced outflows.

Outlook: Robust Corporate Earnings To Sustain FPI Interest

Khan highlights India’s resilient long-term growth story, driven by domestic consumption and manufacturing.

Corporate earnings are expected to compound at an annual rate of 14-17 per cent over the next three to five years.

He suggests that whenever valuations become more attractive, FPI inflows are likely to surge, as observed in April and May.