FPIs pump ₹18,620 crore into Indian equities in May; confidence rises on global and domestic tailwinds

India’s equity market has once again found favour among foreign investors. After witnessing months of outflows, foreign portfolio investors (FPIs) have infused ₹18,620 crore so far in May, indicating a sharp turnaround in sentiment. This builds on April’s modest inflow of ₹4,223 crore—the first monthly net investment since the beginning of 2025.

According to data from depositories, this renewed inflow has helped reverse the adverse trend observed in the first quarter of 2025. FPIs had pulled out ₹3,973 crore in March, a significant ₹34,574 crore in February, and an eye-popping ₹78,027 crore in January, bringing the total outflow to ₹93,731 crore for the year so far.

Despite these earlier outflows, the tide appears to have turned. The buying activity in May marks a resumption of bullish momentum and reflects improving confidence in India’s macro and corporate fundamentals, as well as favourable shifts in global risk sentiment.

Geopolitical Calm and Trade Truce Lift Global Sentiment

Analysts attribute this dramatic shift in FPI behaviour to a combination of geopolitical and economic developments. A major catalyst has been the reported ceasefire between India and Pakistan, which significantly lowered regional tensions and improved investor sentiment.

Another tailwind was the 90-day trade truce between the US and China, which eased global trade concerns. Experts believe this has prompted global investors to reallocate capital toward emerging markets, with India emerging as a prime destination due to its economic resilience and structural growth story.

VK Vijayakumar, Chief Investment Strategist at Geojit Financial Services, said, “With the global trade scenario improving after the pause in the trade war between the US and China and the end of the India-Pakistan conflict, the investment scenario has improved. Going forward, FIIs are likely to continue their buying in India. Therefore, large caps will be resilient.”

While foreign investors have pulled ₹6,748 crore from the debt general limit during the same period, they have infused ₹1,193 crore in the voluntary retention route, indicating selective confidence in fixed-income instruments.

Strong Domestic Story Reinforces Optimism

India’s robust growth outlook, an accommodative monetary policy stance, and solid corporate earnings continue to draw global attention. April marked the beginning of a revival in foreign fund activity, and the momentum has clearly carried into May.

Corporate earnings, especially in sectors such as banking, IT, capital goods, and manufacturing, have shown resilience, reinforcing the belief that the Indian economy is well-positioned to outperform its peers.

The Reserve Bank of India’s (RBI) continued focus on supporting growth while managing inflation within target has added to the comfort of global investors seeking stable policy environments.

Bajaj Broking on Nifty Trends and FII Flows

In a recent report, Bajaj Broking outlined the relationship between foreign fund flows and market direction. From 2020 to 2025, the Nifty 50 index has followed a generally upward trajectory, shaped by various global and domestic events.

According to Bajaj Broking, “The sharp recovery in 2020–2021 reflected robust post-pandemic growth. In 2022, the market experienced some sideways movement and corrections. A renewed uptrend began in 2023 and continued into early 2024, with the index posting higher highs. This was followed by a phase of consolidation from mid-2024 to early 2025. As of April 2025, the Nifty is once again approaching new highs.”

The brokerage noted that cumulative foreign institutional investor (FII) cash flows provide critical insights into investor sentiment. Inflows surged during 2020 and early 2021 but tapered off mid-2021 due to rising global inflation and policy tightening. Persistent outflows marked 2022, driven by geopolitical uncertainties and risk-off sentiment.

However, this trend reversed in 2023, with FIIs returning aggressively to Indian equities. Although there was a renewed outflow in late 2024, foreign flows turned positive again from March 2025, supporting the market’s ongoing rally.

“There is a clear correlation between FII flows and Nifty movements, especially at market turning points,” Bajaj Broking added. “Since 2022, major rallies have coincided with upticks in FII activity. The recent rebound in flows bodes well for the index’s current momentum.”

Valuations High but Large Caps Favoured

Experts caution that while foreign inflows are supportive, valuations in the Indian equity market are no longer cheap. This means any sharp reversal in global sentiment—whether due to inflation surprises, commodity shocks, or renewed geopolitical instability—could impact flows and market direction.

Still, large-cap stocks remain a preferred play, especially as FPIs often gravitate toward high-quality, liquid names in the banking, IT, and consumer sectors.

VK Vijayakumar of Geojit noted, “Large caps will be resilient due to their stability and ability to navigate volatility. FPIs are expected to maintain their buying momentum as long as macro conditions remain supportive.”

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before making any investment decisions.