Why are FIIs buying despite escalating India-Pakistan tension?

Foreign Institutional Investors (FIIs) continued their buying streak for the twelfth consecutive session on Friday with fresh equity investments totalling ₹2,769 crore.

This comes after a significant selloff in the first quarter of 2025, during which FIIs offloaded Indian stocks worth ₹1.29 lakh crore.

However, sentiment appears to be shifting. In April, FIIs made a cautious return as net buyers, investing ₹3,243 crore. Supporting this trend, provisional data shows that domestic institutional investors (DIIs) also contributed to the upward momentum with net purchases of ₹3,290 crore on May 2, as per data available on NSE.

"Foreign Institutional Investors are demonstrating a positive investment trend in India, driven by factors that outweigh concerns despite escalating India-Pakistan tensions. The "There Is No Alternative" (TINA) factor continues to play a significant role globally, making India an attractive destination for foreign capital," said Prashanth Tapse, Sr VP Research Analyst at Mehta Equities Ltd.

During the first three months of 2025, FIIs were big sellers through the exchanges. Cumulatively, FIIs sold equity for ₹1,29,680 crores during the three-month period. In April, FIIs turned buyers, having bought equity for ₹3,243 crore.

What led FIIs to continue to buy despite India-Pakistan conflict?

According to experts, there are four key reasons that explain this shift in FII strategy.

First, US President Donald Trump’s declaration of a 90-day halt on reciprocal tariffs triggered a rebound in global equity markets, during which India showed stronger performance than others.

Second, the decline in the US dollar disrupted and reversed the momentum-driven trade in favour of the US that had emerged following Trump’s election victory. The sharp drop in the Dollar Index—from 111 on January 11 to 99 recently—encouraged foreign institutional investors to shift funds into emerging markets, especially India.

Third, in addition to the factors mentioned above, stronger-than-expected Q4 earnings—especially from the banking sector—and accommodative monetary policies from the Reserve Bank of India have boosted confidence in the Indian market, helping maintain steady interest from FIIs.

Fourth, the "There Is No Alternative" factor remains a key driver globally, positioning India as an appealing destination for foreign investment. Investor confidence has been further strengthened by the optimism surrounding a potential US-India trade agreement, which is expected to boost economic relations between the two nations.

“FII inflows can remain stable, but will be constrained by the modest earnings growth of around 5 per cent in FY25,” said VK Vijayakumar, Chief Investment Strategist, Geojit Investments Limited.

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