The Indian stock market has been in consolidation mode this year, with benchmark indices — Sensex and Nifty — lagging Asian and global peers by a wide margin. Among the factors that have plagued indices this year, apart from tariff-related worries and earnings slowdown, is the sharp selling by foreign institutional investors (FIIs).
FIIs have been net sellers of Indian stocks to the tune of over 155,000 crore in 2025 so far, largely plagued by a weak Indian rupee, steep 50% tariffs on India by the US President Donald Trump and high valuations and slowdown in earnings.
However, some signs of a rebound are visible with FIIs turning net buyers in a week amid inflows of 1,346.3 crore during this period. Data for December shows that FIIs have been net buyers during three days this month so far, buying stocks between December 17-19.
What has sparked this rebound?
According to analysts, the rupee’s recovery almost definitely played a meaningful role in attracting FIIs back to the Indian stock market last week.
The rupee recovered to above 90 per US dollar last week following the RBI intervention. At one point, the rupee had slumped to below 91 mark vs the USD.
For FIIs, currency stability directly improves dollar returns and reduces hedging costs, so even a modest appreciation or reduced volatility in the rupee can trigger tactical inflows, explained Raj Gaikar, Research Analyst, SAMCO Securities. However, he said that it was not the sole trigger.
Indian equity valuations have become relatively more reasonable due to consolidation and time-based correction, particularly in large-cap financials and IT, which are typical FII entry points, he added.
Moreover, easing global bond yields also helped, as US yields fell back from recent highs, meaning the demand for emerging market equities improved, said Ross Maxwell, Global Strategy Operations Lead, VT Markets. Two-year Treasury yields have fallen by 72 basis points this year, while the 10-year yield trades at 4.1589%, down 42 bps for the year, as per a Bloomberg report.
Meanwhile, a favorable domestic macro set-up continues to distinguish India from many other emerging markets.
Will 2026 mark strong FII inflows for India?
Going ahead, analysts remain cautiously optimistic on the FII flow trend. They expect to see some recovery, but believe it would be balanced rather than one-directional.
Maxwell said that if global rates begin to ease and the US dollar weakens, India could see more sustained inflows, supported by its structural growth story. However, volatility will remain, and flows may remain selective, favoring high-quality companies with earnings visibility rather than buying more broadly, he added.
Echoing similar views, Gaikar said that rather than a sharp reversal, a gradual, stock-specific reallocation appears more likely. Sustained FII inflows will depend on the pace of global rate cuts, earnings recovery, and continued macro stability, he opined.
2025 has been the worst year on record for the Indian stock market in terms of FII outflows.
Disclaimer: This story is for educational purposes only. The views and recommendations expressed are those of individual analysts or broking firms, not Mint. We advise investors to consult with certified experts before making any investment decisions, as market conditions can change rapidly and circumstances may vary.
