FIIs Return with Consecutive Monthly Inflows After Heavy Sell-Off

Positive Shifts After Heavy Sell-Offs Mark Strong Return to Indian Markets

Foreign Institutional Investors (FIIs) have staged a significant comeback in the Indian equity markets, recording consecutive monthly inflows after a period of heavy sell-offs earlier in 2025. As of April 29, FIIs invested ₹10,558.97 crore, following a smaller ₹1,717.78 crore in March. This marks the second consecutive month of net positive inflows, a sharp reversal from the large-scale outflows in January and February, when FIIs withdrew ₹72,677.21 crore and ₹46,599.08 crore, respectively.

Highlights:

• FIIs invested ₹10,558.97 crore in April: Positive inflows continue after a rocky start to the year.

• Consecutive months of positive inflows: Following ₹1,717.78 crore in March, inflows in April marked a notable shift.

• Previous heavy sell-offs: January and February saw outflows totaling ₹1.19 lakh crore.

What’s Behind the Reversal in FII Flows?

Global and Domestic Factors Combine to Spark Optimism for Emerging Markets

The recent uptick in FII inflows can be attributed to both international and domestic factors. According to Trivesh D, an expert from Tradejini, the reversal in FII flows is driven by improving global sentiment, particularly in the US. Softening US inflation and expectations of Federal Reserve rate reductions have increased risk appetite for emerging markets, including India. Domestically, India’s projected GDP growth of 6.5% in FY2025, along with a stable rupee and political stability post-elections, has bolstered investor confidence.

Additionally, the Nifty’s return to its 10-year average price-to-earnings (P/E) ratio of 22x after recent corrections has made Indian equities more attractive to investors, further encouraging FII inflows.

Highlights:

• Global factors: Softening US inflation, expected rate cuts increase emerging market appeal.

• Domestic factors: India’s stable economy and political landscape boost investor confidence.

• Nifty’s attractive valuation: Return to long-term average P/E ratio spurs interest.

Domestic Institutional Investors Continue to Support Market Amid FII Volatility

DIIs Invest ₹61,491.55 Crore in Two Consecutive Months

While FIIs have returned to buying, domestic institutional investors (DIIs) have been a consistent source of support for the market. In April, DIIs invested ₹23,905.87 crore, following ₹37,585.68 crore in March, maintaining a solid presence in the market. On a cumulative basis, DIIs have invested ₹2.1 lakh crore in Indian equities in 2025, reinforcing their crucial role in stabilizing the market during periods of FII withdrawal.

Highlights:

• DIIs continue strong investments: ₹2.1 lakh crore invested in 2025 so far.

• March-April DII inflows: ₹61,491.55 crore invested in two months.

• Steady market support: DIIs’ investments act as a buffer against FII volatility.

Trends in FII and DII Holdings: Changing Dynamics in Indian Equity Market

DIIs Overtake FIIs in Equity Holdings for the First Time in 50 Quarters

In terms of ownership, the landscape is shifting. As of March 2025, DIIs held approximately 16.91% of Indian equities, slightly surpassing FIIs, whose holdings dipped to around 16.84%, marking a 50-quarter low. This marks a significant shift in the dynamics of market ownership, with DIIs now holding ₹69.80 lakh crore in assets, while FIIs hold ₹69.58 lakh crore. This shift indicates a growing influence of domestic investors in Indian equities, especially amid fluctuating FII participation.

Highlights:

• DII holdings surpass FII holdings: For the first time in 50 quarters.

• Change in equity market ownership: DIIs now control ₹69.80 lakh crore in assets.

• FII holdings fall to 16.84%: Marking a historical low in FII equity exposure.

Outlook on FII Flows: Potential Risks and Opportunities

Global and Domestic Factors Will Shape Future Investment Sentiment

Looking ahead, FII flows remain sensitive to both global and domestic factors. Internationally, any potential US interest rate hikes or geopolitical tensions could dampen risk appetite and reverse the positive flow trend. On the domestic front, inflation spikes or policy missteps could also create headwinds for investor sentiment. However, experts suggest that DIIs will likely cushion the impact of any FII outflows, providing a stabilizing force in the Indian equity market.

Highlights:

• Global risks: US rate hikes and geopolitical issues could curb FII flows.

• Domestic risks: Inflation spikes or policy errors might affect market sentiment.

• DII resilience: Domestic investors poised to buffer any FII pullbacks.

SEBI’s Positive Outlook on Foreign Investments in India

International Investors Show Confidence in India’s Economic Stability

In a recent statement, SEBI Chairperson Tuhin Kanta Pandey expressed optimism about the growth of foreign investments in India, particularly in light of the positive meetings held with FPI investors in major US cities. Pandey highlighted that FPIs have invested $58 billion across equity and debt in India over the past five years, underscoring global confidence in India’s long-term economic prospects. This continued foreign interest is expected to support India’s growth trajectory and could potentially lead to more FII inflows in the future.

Highlights:

• SEBI Chairperson upbeat on FPI interest: Positive feedback from global investors.

• $58 billion in FPI investments over 5 years: Reflecting confidence in India’s economic potential.

• Encouraging foreign sentiment: Strengthens outlook for future FII inflows.