FIIs turn buyers in February so far: Temporary bounce or start of a new trend?

After prolonged selling, foreign institutional investors (FIIs) have shown early signs of returning to Indian equities. February has so far seen a shift in flows, raising a key question for markets: is this a temporary bounce or the beginning of a more durable trend?

A visible change in FII flows

VK Vijayakumar, Chief Investment Strategist at Geojit Investments, pointed out that February has marked a discernible change in FII behaviour. Up to February 6, FIIs were net buyers of Indian equities to the tune of Rs 2,645 crore. In the last four trading sessions, they were buyers in three, signalling a break from the selling pressure seen over the past year.

According to Vijayakumar, the domestic currency movement has played an important role in improving sentiment. The Indian rupee has appreciated from its record low of 91.72 against the dollar, easing concerns around currency risk for foreign investors. He expects the rupee to stabilise and gradually appreciate to below 90 per dollar by the end of March 2026, a move that could encourage incremental FII inflows. At the same time, he cautioned that global factors, including how the AI-led trade theme evolves, will continue to influence foreign flows.

Event-heavy week lifts sentiment

Vijayakumar noted that the previous week was packed with market-moving developments. The Union Budget, the India–EU trade deal and the long-awaited India–US trade agreement were all announced within a short span, shaping investor expectations.

Markets initially reacted negatively to the hike in securities transaction tax (STT) on futures and options trades. However, sentiment recovered swiftly following news of the India–US trade deal, which helped offset some of the concerns around higher trading costs and policy uncertainty.

Why FIIs had stayed away

Motilal Oswal Financial Services Ltd (MOFSL) noted that FIIs had been cautious earlier due to the pending Indo-US trade, which was seen as limiting India's negotiating leverage with the US. Consequently, India underperformed its peers by nearly 40 per cent over the past year.

MOFSL estimates that FIIs withdrew about $22 billion from Indian equities since January 2025. This period also saw the Indian rupee depreciate against the US dollar, even as the dollar index slid. According to the brokerage, several of these adverse trends now appear to be reversing, improving the risk-reward equation for foreign investors.

Trade deals & domestic triggers

Ajay Garg, Director and CEO of SMC Global Securities, said that recent trade agreements with the US and the European Union are likely to strengthen confidence in India's medium-term growth outlook. He added that India's domestic fundamentals remain supportive, which could help attract foreign capital.

However, Garg stressed that sustained FII inflows will depend on multiple factors. Corporate earnings performance, valuation comfort, and the final shape and execution of the trade agreements will be critical in determining whether foreign investors maintain their renewed interest.

Latest FII-DII data

NSE data showed that FIIs bought shares worth Rs 1,950.77 crore on a net basis in the previous session. In contrast, domestic institutional investors (DIIs) were net sellers, offloading equities worth Rs 1,265.06 crore.