The Indian stock market recorded net buying of $1.7 billion by foreign investors

A high-tech country

Foreign institutional investors (FIIs), often referred to as global funds, have shifted their strategy in the Indian stock market, moving to net buying in February 2026 after three consecutive months of sharp selling. Preliminary data and reports indicate net buying of approximately $1.7 billion (around 14,000–16,900 crore rupees depending on the closing date and exact exchange rate) so far this month, a significant reversal from outflows of around $3.3–4 billion in January and strong outflows in December.

Finance Minister Nirmala Sitharaman highlighted this development in a recent speech in New Delhi, stating that India has “every reason” to attract foreign capital thanks to its strong macroeconomic factors, stable policies, and growth trajectory.

Although capital inflows remain modest compared to countries like China, Japan, and Taiwan, this recovery marks a temporary thaw in market sentiment amid lingering global uncertainties.

What is driving this positive change ?

Several structural factors appear to be supporting renewed interest from foreign investors. India continues to exhibit relatively strong GDP growth compared to other major economies, supported by domestic consumption, infrastructure investment, and manufacturing expansion. In addition, improving inflation trends and monetary stability have mitigated some of the macroeconomic risks previously weighing on capital allocation.

Global portfolio managers may also be shifting capital back to emerging markets as expectations for stable US interest rates allow risk appetite to gradually return.

Historically, foreign capital flows have favored sectors such as finance, technology services, industry, and non-essential consumer goods. Indian banks, in particular, have benefited from credit growth momentum and expanding domestic demand, while IT service companies continue to benefit from global digital transformation spending.

Impact on currency and liquidity

Resumed foreign buying supports the Indian rupee by increasing capital inflows into the domestic market. Currency stability, in turn, bolsters investor confidence by reducing exchange rate risk. Improved liquidity conditions can also lower risk premiums and support expanding valuations.

However, the sustainability of capital flows will depend on global risk sentiment and geopolitical stability. India is increasingly positioning itself as a structural growth story rather than a purely cyclical emerging market.

Compared to other developing economies facing slower growth rates or dependence on commodities, India's diversified economy and demographic dynamics make it a preferred choice for long-term institutional investment.

Our review

As Finance Minister Sitharaman noted, India's fundamentals remain very attractive—strong GDP growth, fiscal discipline, and structural reforms. The February inflows reflect confidence, albeit cautious. If global risk appetite is maintained and domestic returns exceed expectations, this could lead to a more significant revaluation of Indian equities in the coming quarters. For now, it's a cautious recovery, not a full-blown return.

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Compiled and analyzed by HCCVenture

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