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Foreign portfolio investors channeled ₹19,675 crore ($2.3 billion) into Indian equities across seven positive sessions in early February, buoyed by the US-India trade deal and softening US inflation data. But a ₹7,395 crore ($870 million) single-day selloff on February 13 — triggered by what traders called the “Anthropic shock” — wiped out most gains, leaving FPIs as net sellers of ₹1,374 crore ($162 million) for the month. The episode crystallized a deeper reality: India’s markets are no longer hostage to foreign capital flows.
The Numbers Behind the Headlines
The ₹19,675 crore ($2.3 billion) in gross buying through February 13 marked a sharp reversal from three consecutive months of heavy selling: ₹35,962 crore ($4.2 billion) withdrawn in January, ₹22,611 crore ($2.7 billion) in December, and ₹3,765 crore ($440 million) in November. Cumulatively, FPIs have pulled a net ₹1.66 lakh crore ($18.9 billion) from Indian equities since the start of 2025 — ranking among the worst periods for foreign capital flows in market history.
The selling was driven by volatile currency movements, escalating global trade tensions, fears of US tariff impositions, and stretched equity valuations. But the February buying, while encouraging, needs context. FPIs were net buyers on seven of eleven trading sessions, but net sellers on four — and the magnitude of selling days, particularly February 13’s ₹7,395 crore ($870 million) outflow as the Nifty plummeted 336 points, overwhelmed the steady accumulation on positive days.
What Triggered the Turnaround — and the Reversal
Himanshu Srivastava, principal manager of research at Morningstar Investment Research India, attributes the renewed buying to softening US inflation data that improved sentiment around the interest rate trajectory, helping stabilize bond yields and the dollar while enhancing risk appetite for emerging market assets. Domestically, steady macro indicators, controlled inflation, and corporate earnings broadly meeting expectations reinforced India’s growth narrative.
Vaqarjaved Khan, senior fundamental analyst at Angel One, points to the US-India trade agreement as the primary catalyst, complemented by the Union Budget 2026’s fiscal stimulus measures. According to Elara Capital, India-focused funds saw inflows of $217 million in the week through February 13 — the highest in seven months — driven entirely by ETF buying, with US- and Ireland-domiciled vehicles accounting for the bulk. This suggests institutional rather than speculative interest.
The reversal on February 13, however, exposed vulnerability. VK Vijayakumar, Chief Investment Strategist at Geojit Investments, noted that FPIs likely offloaded IT stocks aggressively in the cash market, contributing to an 8.2% collapse in the IT index for the week. The technology sector bore the brunt of what participants termed the “Anthropic shock,” demonstrating how quickly sentiment-driven selling can erase weeks of patient accumulation.
The Structural Shift Markets Are Missing
The more significant story, however, is not what foreign investors are doing — but how little it matters compared to a decade ago. Domestic institutional investors now hold approximately 19.2% of Indian listed equity market capitalization, surpassing FPI ownership at 18.5% for the second consecutive quarter as of mid-2025, according to ICICI Direct and NSE data. This represents a historic reversal of decades of foreign dominance.
The engine behind this shift is India’s SIP culture. In Q1 FY26 alone, mutual fund inflows reached approximately ₹1.16 lakh crore ($13.15 billion), supported by SIP participation of ₹80,000 crore ($9.07 billion). In calendar year 2025, domestic mutual funds infused a record ₹4.84 lakh crore ($56.8 billion) into equities — more than three times the ₹1.66 lakh crore ($18.9 billion) that FPIs withdrew. The math is stark: for every rupee foreign investors pulled out, domestic institutions put three in.
This domestic liquidity buffer explains why the Nifty has remained relatively range-bound despite record FPI selling. As Naren Agarwal of Wealth1 observes, corrections are now increasingly met with domestic buying rather than panic selling. India’s 200 million demat accounts and growing financialization of household savings have created an automatic stabilizer that did not exist even five years ago.
What Comes Next
The sustainability of FPI re-entry depends on several moving parts: implementation details of the US-India trade deal, the Fed’s rate trajectory, rupee-dollar dynamics, and whether Indian valuations — still among the most expensive in emerging markets — offer sufficient margin of safety. Analysts at INVasset PMS note that FII flows are likely to be selective in 2026, with close attention to valuations and currency stability. But the larger question may no longer be whether foreign investors return — but whether India’s markets still need them to.
Sources: Economic Times, The Hindu Business Line
