Foreign love rekindled: What 14 days of FII buying signals for Indian markets

For the first time in 22 years, Domestic Institutional Investors (DIIs) have overtaken Foreign Institutional Investors (FIIs) in terms of holdings in NSE-listed stocks — a historic shift as per the March 2025 data. Yet, just as we began to write off FII interest in Indian equities, the second half of April 2025 proved otherwise. In a sharp reversal, FIIs turned net buyers for 14 consecutive trading sessions till May 7th, rekindling their long-standing love-hate relationship with Indian markets.

So, what has brought FIIs back into action, and more importantly, how do Indian markets historically perform after such buying sprees?

Historical Pattern of FII Buying: What the Data Shows

ETMarkets.com

Historical Pattern of FII Buying

An analysis of historical data since 2010 reveals 25 instances where FIIs were net buyers in Indian equities for 14 consecutive days. The forward returns of the Nifty 50 index in these scenarios have been consistently positive, with returns improving as the holding period extends. Interestingly, the probability of positive returns from 25 instances is more than 50% for all the time frame period, while the probability increases for longer holding period indicating an upward momentum from FII’s buying.

This trend underscores a key insight: When FIIs buy in unison and for a sustained period, it typically marks the beginning of an upward momentum.

But let’s understand Why Are FIIs Turning Bullish on India Again.

A combination of domestic macro tailwinds and improving global perception has brought India back into the FII spotlight.

1. RBI’s Proactive Liquidity Measures

The Reserve Bank of India (RBI) has implemented a series of initiatives aimed at boosting systemic liquidity and supporting economic growth:

• Policy Rate Cut and Accommodative Stance: In April 2025, the RBI cut the repo rate by 25 basis points and shifted its policy stance to 'accommodative'. This signals a positive outlook, encouraging credit flow and supporting broader economic activity.
• Open Market Operations: The RBI has committed to purchasing ₹1.25 trillion worth of government bonds. This will infuse liquidity into the banking system, ease bond yields, and lower borrowing costs across the board.
• Relaxation in Liquidity Coverage Ratio (LCR): By reducing the LCR requirement for digitally linked deposits, the RBI is expected to free up approximately ₹3 trillion for banks—translating into an estimated 1.4%–2% boost in credit growth.
• Record Dividend to the Government: The central bank is projected to transfer a dividend of ₹2.3–2.5 lakh crore to the government, which can be deployed towards capital expenditure and social spending, further supporting the economy.

Collectively, these measures enhance the lending capacity of banks, particularly benefiting the financial sector, a heavyweight in the Nifty 50 index. This, in turn, likely contributes to the increased FII interest.

2. Sharp Decline in Crude Oil Prices

India, which imports nearly 80% of its crude oil requirements, stands to benefit significantly from the recent decline in global oil prices. Brent crude has dropped to a four-year low, falling below USD 60 per barrel. This decline helps reduce input and operating costs across various sectors, thereby improving overall profitability. Key beneficiaries include oil marketing companies, paint manufacturers, and airlines—industries where crude oil forms a major part of their cost structure. Additionally, lower oil prices reduce transportation and logistics expenses, positively impacting a broad range of Nifty 50 companies.

3. Appreciation of the Indian Rupee and Rising Forex Reserves

As highlighted in my previous article, the Nifty 50 has historically shown a positive correlation with India's foreign exchange reserves and an inverse relationship with the USD/INR exchange rate. After touching a record high of 87.97, the USD/INR pair has appreciated by 4.41%, reaching 83.76—a level last seen in September 2024. This strengthening of the Indian Rupee reflects improving macroeconomic stability, which in turn supports positive market sentiment

4. Easing Global Trade Tensions

Markets saw heightened volatility following the announcement of reciprocal tariffs by the United States. However, the subsequent temporary pause on these tariffs and ongoing progress in trade negotiations with both the US and the UK have improved sentiment. These developments position India to expand its export potential and capture a greater share of global trade, enhancing its appeal as an investment destination.

FIIs are clearly sensing something — a confluence of falling crude, stable currency, expanding liquidity, and improving global trade positioning. If these themes persist, the historical patterns suggest that Nifty 50 could continue its upward trajectory.

However, investors should remain vigilant of global macro triggers like US Fed commentary, geopolitical tensions, and inflation surprises.

(Disclaimer: Recommendations, suggestions, views, and opinions given by experts are their own. These do not represent the views of the Economic Times)