FIIs' Diwali Homecoming: Foreign Investors Finally Return To D-Street After Three Months Of Massive Selloff

In a surprising shift, after a massive spell of sell-offs, Foreign Institutional Investors (FIIs) appear to be rediscovering their appetite for Indian equities, signaling a possible change in sentiment towards domestic markets.

Following months of relentless selling, recent trends show FIIs cautiously re-entering Indian stocks, injecting fresh capital and sparking optimism.

FIIs Pivot to Buying: A New Trend Emerges

Data from the National Securities Depository Limited (NSDL) indicates that between October 7 and October 15, 2025, FIIs were net buyers in five of seven trading sessions, channeling over Rs 3,000 crore into India’s secondary market.

On October 15, FIIs invested Rs 68.64 crore, per exchange data, while Domestic Institutional Investors (DIIs) added Rs 4,650.08 crore, amplifying the bullish momentum.

This capital inflow aligns with gains in key indices. Since early October, the Sensex and Nifty have risen by about 3%, with the BSE MidCap and SmallCap indices advancing 3.4% and 1.7%, respectively. The combined buying from foreign and domestic investors has ignited hope among market participants.

A Departure from Heavy Selling

The recent FII activity contrasts sharply with earlier trends in 2025. From January to September, FIIs withdrew over Rs 2 lakh crore from the secondary market, with intense selling in July (Rs 47,667 crore), August (Rs 46,903 crore), and September (Rs 35,301 crore), totaling over Rs 1.3 lakh crore.

This pressure caused Indian equities to lag, with the Sensex and Nifty gaining only 3%, while MidCap and SmallCap indices dropped 3% and 4%, respectively.

In October, however, the tide has turned. Net selling plummeted to Rs 1,893 crore, a fraction of prior months’ outflows.

Daily data underscores this shift, with notable FII purchases of Rs 1,441 crore on October 7 and Rs 1,308 crore on October 9.

Even on net-selling days, like October 13 (Rs 240 crore), outflows were minimal, signaling growing confidence in Indian valuations.

What’s Fuelling the FII Return?

Could this mark the start of a sustained FII re-entry into India’s markets? Several factors, blending domestic strength and global dynamics, appear to be driving this shift. Here’s a closer look.

India-US Trade Talks Spark Optimism

A potential India-US trade deal is generating significant buzz. As of October 16, 2025, Indian officials, led by Commerce Secretary Rajesh Agrawal, are negotiating in the US, per PTI reports.

With US-China trade tensions escalating due to new tariffs, a deal favoring India seems increasingly likely. This could boost Indian exports and corporate earnings, making equities more attractive to FIIs.

Solid Economic Fundamentals

India’s strong macroeconomic outlook is a key draw. The IMF recently raised India’s FY26 growth forecast to 6.6%, reflecting robust economic prospects.

September’s CPI inflation fell to 1.54%, fueling speculation of an RBI rate cut, which could benefit sectors like automobiles and banking, appealing to foreign investors.

Global Uncertainties and Currency Advantage

Rising global uncertainties, reflected in gold ($4,225.69 per ounce) and silver ($53.60 per ounce) prices, signal demand for safe-haven assets.

A weaker US dollar, driven by expected Federal Reserve rate cuts in November and December, enhances the appeal of Indian equities.

The rupee’s strength, with a 1% gain on October 15 and stability on October 16, further supports this trend.

Recovery in Corporate Earnings

Signs of improving corporate performance are also attracting FIIs. Government measures, including GST rate cuts, a repo rate reduction in June 2025, and an S&P sovereign rating upgrade, have bolstered confidence in India’s growth trajectory, encouraging FIIs to reconsider Indian stocks.

Also Read: IMF Chief: Private Sector Reform, Fiscal Discipline Key Amid Uncertainty

The Road Ahead for Indian Markets

The transition from heavy FII selling to cautious buying is a positive signal. While some view this as a temporary rebound, others see potential for sustained inflows, particularly if trade talks and economic indicators remain favorable.

The sharp drop in outflows and consistent daily purchases reflect growing FII confidence.

Yet, risks linger. Global geopolitical tensions and economic shifts could sway FII sentiment. For now, October 2025 marks a pivotal moment, with Indian equities regaining appeal after a tough year.

Bottom Line

With over Rs 3,000 crore invested in just seven sessions, FIIs are signaling renewed interest in Indian equities.

Supported by promising India-US trade talks, strong economic fundamentals, a stable rupee, and recovering corporate earnings, this shift could herald a broader resurgence of foreign capital.