There are at least many reasons for the first net inflow from foreign portfolio investors in many months. Will this be a short love affair or FPIs fal…
1/8AI hype fading: For most of 2026, global money chased AI winners like Taiwan & South Korea. India was ignored, especially the IT sector. But as that trade cooled off, capital started to rotate back into under-owned markets like India in July. AI adoption is still slow, and the conversation has already shifted from fear of missing out to a demand for concrete returns. This revaluation is unlikely to change soon.
2/8Exhaustion: Foreign investors sold nearly $29 billion in the first half of the 2026. Many global funds had become significantly underweight India. FPI stake in Nifty 500 stocks is still at 17%, the lowest in decades, leaving enough headroom for more purchases.
3/8Macro picture has improved: Crude oil prices have cooled from recent peaks amid hopes that geopolitical tensions in Iran will ease. That makes India’s macro outlook far more comfortable than what it was a few months ago, given that nearly nine out of every ten barrels of crude oil that the country consumes comes from abroad, leaving the economy and currency vulnerable to supply disruptions and inflationary shocks. Crude oil prices remain a significant factor for dollar inflows.
4/8Better liquidity: Part of foreign funds’ buying is tactical, spurred by softer US yields, which make emerging markets more attractive. If global liquidity tightens again, the dollar flows can retreat. However, a rise in US bond yields signals increased risk aversion in global markets. The liquidity boost may prove temporary if risk appetite declines further.
5/8Valuations more palatable: After months of correction and FII selling, India’s valuation premium over other emerging markets has moderated, making some global strategists more constructive on India. MSCI India members are trading about 4% below their five‑year average price‑to‑earnings ratio, according to Bloomberg data.
6/8The earnings season has been better than expected: According to Mumbai-based broking firm Motilal Oswal, the first 39 Nifty companies to report have delivered 11% earnings growth, which is ahead of their 7% estimate. Consensus estimates for over 250 companies suggest fiscal 2027 earnings growth of 16%, Saion Mukherjee, strategist at Nomura Holdings, told Bloomberg. That’s a significant jump from the less than 10% growth in recent quarters.
7/8Indian IT shows signs of life: The Nifty IT index rallied almost 17% in July. Investors are rethinking the idea that AI will destroy IT services. But the earnings from sector heavyweights like TCS, Infosys, HCLTech & Tech Mahindra were more resilient than the street had expected. Yet, the sell-off in the sector was so brutal before July that some of the rebound may just be a tactical correction. AI is here to stay, and the consensus around IT stocks is that a sharp margin squeeze is inevitable in the long term.
8/8The rupee is on a better wicket: The RBI has said that the dollar swap facility has received a total of $40.8 billion till date, with FCNR-B deposits accounting for the lion’s share, leading to expectations that the total foreign exchange inflows could be about $80-85 billion, which is a lot higher than earlier estimates. A stable or stronger rupee is a positive for foreign investors.
