Global funds make a $2.1 billion comeback on D-Street as earnings prospects improve

Foreign investors are returning to Indian shares at the fastest pace in eight months, supported by stabilizing corporate earnings and a US trade deal that improves the outlook for the coming months.Global funds have bought nearly $2.1 billion of local stocks so far in February, putting inflows on track to be the strongest since June. The recovery follows last year’s record exodus, as investors shifted their exposure to AI-powered markets such as the US, China and South Korea.

The recovery in inflows suggests that some of the pressure that weighed on Indian equities is starting to ease. A long-awaited trade deal with the US earlier this month has removed a major source of uncertainty for the $5.2 trillion market. Improving corporate performance is also reviving the case for a rotation into Indian equities, which have lagged most Asian and emerging markets since early 2025.“We see positive momentum towards Indian equities,” said Sumeet Rohra, fund manager at Smartsun in Singapore. With the economy’s nominal growth rate projected at around 10% in fiscal 2027, “there is a good chance that corporate profits will grow by around 15%, potentially making India a star player.”

While foreign investors largely reduced their exposure in 2025, local investors, encouraged by policy continuity, stepped in to help the MSCI India Index rise 8.1% last year.

Yet India lagged the region, with the local gauge’s progress falling far short of the 25% rise of the MSCI Asia Pacific Index by 2025. This underperformance has kept valuations relatively low. MSCI India’s members are trading about 4% below their five-year average price-to-earnings ratio, Bloomberg data shows – a discount that could pull investors back.

In the meantime, signs point to profit-driven momentum. FTSE India Index companies’ revenue rose 10% year-on-year in the December quarter, while net profit rose 13%, HSBC Holdings Plc strategists including Prerna Garg wrote in a note.

Broader earnings forecasts remain firm. Consensus estimates for more than 250 companies point to 16% earnings growth in fiscal 2027, Nomura Holdings Inc. strategist Saion Mukherjee said.

“Gains are supported by a recovery in nominal GDP growth in FY27, cyclical recovery in private investment, a potential revival in exports and continued momentum in consumption in the near term,” Mukherjee said.

Financial companies remain among the top picks of global investors as they add stocks from the metals and capital goods sectors in recent months, data compiled by National Securities Depository Ltd shows.

Some investors warn against seeing the latest capital inflows as the start of a structural bull run. A sell-off of Indian software and technology companies this month wiped out more than $50 billion in market value amid concerns about the impact of AI on their business models.

Some of the foreign fund buying is tactical, fueled by softer U.S. rates and the relative attractiveness of emerging markets, said Sonam Srivastava, founder of Wright Research Portfolio Management Services. “If global liquidity tightens again, flows could reverse,” she said.

Still, liquidity is not the whole story, Srivastava added. The global positioning vis-à-vis India remains clear for the time being.

“As more reasonable valuations and earnings revisions stabilize, they are returning to a neutral weighting,” she said.