Foreign funds likely to enter India again – The Times of India

MUMBAI: The US-India trade deal is expected to have a positive impact on foreign fund buying in India, potentially reversing the massive outflows from the stock market in recent months.On the one hand, the deal removes a long-standing overhang from the market, which in turn would improve investor sentiment about India globally. Moreover, this could also strengthen the rupee and, coupled with better corporate earnings, attract foreign funds to invest in India again on a large scale, a top brokerage official said.So far, foreign portfolio investors (FPIs) have net sold shares worth nearly Rs 35,000 crore in the Indian market in 2026. This is in addition to the Rs 1.7 lakh crore of shares sold net in 2025. The sell-off, in turn, put pressure on the rupee.

FPI flows last for 1 year

Despite strong intervention from the central government, the rupee had depreciated by more than 6% since early 2025. FPI selling in India also led to underperformance of the Indian market, with Nifty up a modest 7.4% over the past year through February 2 and Sensex up 5.8%. By comparison, South Korea’s Kospi Composite more than doubled in value, while Brazil returned 45%.“The underperformance of Indian equities over the past year can be attributed, at least in part, to large and persistent outflows from FPIs,” said Sujan Hajra, chief economist and executive director of Anand Rathi Group. These flows were driven by increasing geopolitical and policy uncertainty surrounding India’s trade relationship with the US.“For global investors, deteriorating India-US relations translated into higher perceived risk premia, currency uncertainty and capital flight, even as domestic profits remained steady.”“Now that the India-US treaty is in force, that overhang is starting to disappear. The most important shift is not incremental tariff relief, but the restoration of geopolitical and trade stability. With risk premia normalizing, India appears investable again for global capital – a fast-growing, politically aligned, strategically important economy with strong domestic demand and improved external ties with both the US and Europe,” Hajra said. In Tuesday’s market, net inflows by FPIs stood at Rs 5,236 crore, the highest single-day inflows in three months, BSE data showed. However, market players believe that this could be an anomaly but the direction of flows is likely to change soon.