FIIs return to markets, here are factors propelling them to buy Indian shares

Foreign institutional investors (FIIs), who had been net sellers in the Indian markets are returning to India. They have been net buyers in the last two sessions in Indian markets after their pace of selling slowed since the start of this month. The FIIs bought shares worth ₹8,444.79 crore in the last two trading sessions, data from the National Securities Depository Limited (NSDL) showed. The buying by FIIs has coincided with the SENSEX and NIFTY50 indices posting their best week since the start of this year last week after NIFTY50 and SENSEX indices rose 4.25% and 4.16% respectively.

The surge in markets came on the back of value buying at lower levels, expectations of two rate cuts by the US Federal Reserve and selling pressure by foreign institutional investors slowing down, analysts said. Meanwhile, rising hopes of a rate cut from the Reserve Bank of India at its policy meet next month also supported bullish sentiment for equities.

Despite turning net buyers in the last two sessions the FIIs have so far sold shares worth ₹26,456 crore this month and in the current year the FIIs have been net sellers to the tune ₹1,39,057 crore. _ Here are the top factors why FIIs are returning to Indian markets:_

Attractive valuations

Analysts point to attractive valuations of some stocks and sectors in Indian markets after they staged their longest spell of losses since inspection last month. Starting October last year, the markets tumbled for fifth months in a row making the valuations of Indian markets attractive. NIFTY50's price to earnings ratio corrected from peak of 24.4 times in September to 19.6 times earlier this month. Moreover, many shares in the large, mid and small-cap space staged a sharp correction making them attractive for investment purpose. Leading to value buying in them.

Shares in defence sector staged a strong up move last week with the India Defence Index on the National Stock Exchange surging a whopping 14%.

Dollar index correction

Sharp recovery in rupee from record lows against the US dollar it touched last month and correction in the dollar index are also adding to FIIs turning net buyers. The rupee has appreciated 173 paise to 85.84 against the US dollar. It had touched record low of 87.57 on February 6. Meanwhile, correction in the dollar index after it surged to 110 in January has also led to FIIs turning back to India after they sold shares worth ₹2.39 lakh crore since start of October when they turned net sellers.

Concerns of slowdown in US economy

Rising concerns over slowdown in the US economy and fears of spike in inflation have also led to flight of money to the emerging markets like India, analysts said. Last week, the Federal Reserve upheld its forecast for two rate cuts in 2025. Lower US interest rates enhance the appeal of emerging markets like India for foreign investors.

The US Fed also expects the economy to grow slowly this year as it forecasts growth falling to 1.7% in 2025, down from 2.8% last year, and 1.8% in 2026. The Fed also expects inflation to pick up to 2.7% by the end of this year from its current level of 2.5%.

US President's softening stance on tariffs

The United States President Donald Trump, who had rattled the global trade by imposing tariffs when he assumed office earlier this year, seems to be softening his stance on tariffs. As per the latest report by news agency Reuters, President Trump said on Monday that automobile tariffs are coming soon even as he indicated that not all of his threatened levies would be imposed on April 2 and some countries may get breaks.

Meanwhile, Trump opened another front in a global trade war by slapping 25% secondary tariffs on any country that buys oil or gas from Venezuela, a directive that sent oil prices climbing.

At the White House, Trump told reporters not all the new tariffs would be announced on April 2, and said he may give "a lot of countries" breaks on tariffs but provided no details, the Reuters report added.