It appears that overseas investors have altered their bearish stance on the Indian stock market, turning net buyers in February after three consecutive months of selling through January. This shift appears to have been boosted by the interim trade deal between India and the US, even as the December quarter performance has offered mixed results so far.
The renewed interest also propelled the frontline indices to witness a sharp rally, with both the Nifty 50 and the Sensex closing last week with gains of 3.50% and 3.60%, respectively.
The broader market, which had underperformed, also got a boost, with the Nifty Midcap 100 and the Nifty Smallcap 100 indices each surging up to 4% in February so far.
FPI inflows hit ₹8,120 crore in Feb so far
After withdrawing billions from local equities in recent months in search of better opportunities in other emerging markets, FPIs have poured in ₹8,129 crore in February so far, according to the NSDL data.
This came after they withdrew ₹35,962 crore in January, ₹22,611 crore in December, and ₹3,765 crore in November.
According to analysts, the shift in stance was largely driven by the interim trade deal between India and the US, which removed a key overhang, brightened the outlook for Indian exports, and had the potential to make Indian-made goods more competitive compared with other Asian exporters.
The US and India moved closer to a trade pact on Friday, releasing an interim framework that would lower tariffs, reshape energy ties, and deepen economic cooperation as both countries seek to realign global supply chains.
In addition, analysts have attributed the shift to a slowdown in the global AI trade, which had previously powered markets and is now prompting overseas investors to refocus on Asia’s third-largest economy.
Though unexpected announcements in the Union Budget 2027, such as the hike in STT, dented market sentiment initially, higher capex allocation, a lower fiscal deficit target, and the government’s commitment to keep central government public debt (as a share of GDP) on a declining path have limited the damage.
Besides this, the US-India trade deal also gave a much-needed boost to the Indian rupee, which strengthened 1.3% against the US dollar in February so far.
Rupee appreciation and trade deals may revive FPI inflows
Dr VK Vijayakumar, Chief Investment Strategist at Geojit Investments, said last week was eventful for stock markets. “The Union Budget, the India-EU trade deal, and the much-awaited India-US trade deal happened during the week, and these events had a major impact on the market. The market reacted negatively to the hike in STT on F&O trades but smartly recovered on news of the US-India trade deal,” he added.
He highlighted that a key change in market sentiment was driven by the appreciation of the rupee from a record low of 91.72 to 90.30 against the dollar.
“Even though the rupee further weakened to around 90.70 by the close on February 6, the INR is expected to stabilize and gradually appreciate to below 90 against the dollar by end-March 2026, which he believes has the potential to trigger more FPI inflows into India, while noting that much will depend on how the AI trade pans out,” he said.
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