Why FPIs Are Returning to Indian Stock Markets: 5 Key Factors Behind the Rebound

After months of pulling out, foreign portfolio investors (FPIs) are back—and in a big way. Their renewed interest in Indian stocks is a sharp turnaround from the heavy outflows that had everyone worried about India’s investment appeal and the broader global risk mood. But the latest numbers tell a new story: confidence is coming back, and FPIs are reshaping the market landscape once again.

According to the National Securities Depository Limited (NSDL), FPIs have flipped the script in March 2025, investing over ₹22,000 crore in Indian equities. That’s a major shift after several tough quarters of steady selling.

Just over the last three trading days alone, FPIs brought in ₹13,746 crore—₹3,239 crore on Thursday, ₹7,470 crore on Friday, and another ₹3,055 crore on Monday indicating serious momentum.

So what’s fueling this big comeback? Let’s break down the top five reasons FPIs are turning bullish on India again:

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1. Global Rates Are Settling, and the Fed’s Tone Has Softened

One big reason FPIs had stepped back was because the U.S. and other major economies were hiking interest rates aggressively. Safer, higher returns in the West made emerging markets like India less attractive.

But things have changed. With inflation cooling off in the U.S. and Europe, the Fed is signaling that the worst of the rate hikes might be over. In fact, rate cuts are now on the table for later in 2025. That’s making emerging markets more appealing again—and India’s back in the spotlight.

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2. India’s Economy Is Holding Strong

India’s fundamentals are looking solid. GDP growth for FY25 is expected to be between 6.8% and 7%, backed by strong consumer demand, increased government spending, and a stable banking sector.

Inflation is under controlled limits, the rupee is steady, and foreign exchange reserves are in good standing. All of this adds up to a pretty attractive picture for global investors hunting for stable, high-growth markets.

3. Corporate Earnings Are Looking Good

Indian companies, especially in sectors like banking, auto, FMCG, and capital goods, have been delivering strong results. Q3 FY25 earnings surprised on the upside, with banks showing solid credit growth and healthier balance sheets.

Plus, after months of market correction, stock valuations are now looking more reasonable. That’s especially true for mid-cap stocks and small-cap stocks. Better earnings + better prices = a tempting combo for FPIs.

4. Political Stability and Election Buzz

India’s gearing up for national elections in mid-2025, and markets are betting on continuity and stable governance. Historically, stocks have rallied ahead of elections on the hopes of reform-friendly policies.

FPIs seem to be getting in early, positioning themselves to ride any post-election rally. Their investments are spread across infrastructure, financials, and energy—sectors tied to long-term growth.

5. China’s Struggles Are India’s Opportunity

China’s economic slowdown, tighter regulations, and demographic challenges are pushing global investors to look elsewhere. Enter the “China+1” strategy, and India’s right in the mix.

With a massive consumer base, digital growth, manufacturing incentives like the PLI scheme, and a booming startup scene, India’s ticking a lot of boxes for investors looking to diversify.

What’s Next?

The FPI comeback is a strong vote of confidence for Indian markets, injecting both cash and optimism. However, there are risks that still linger. An unforeseen jump in global inflation, political uncertainty, or geopolitical tensions could quickly shake things up in the markets again.

With local investors already backing the market through SIPs and mutual funds, and FPIs jumping back in, India might just be setting up for a two-engine rally.

To conclude, foreign investors are returning just as India heads into an election year. If things stay on track, this could be the spark that powers the next big leg up in the markets.