Foreign portfolio investors (FPIs) are unlikely to resume significant selling in Indian equity markets as the Indian rupee stages a steady recovery, analysts said on Sunday, 21 June. The shift in FPI behaviour, visible since 15 June, signals that the extended phase of relentless overseas outflows may be drawing to a close.

FPI Buying Resumes After Weeks of Selling

During the week ending 19 June, FPIs purchased equities on three out of five trading sessions, resulting in net buying of ₹3,386 crore in the cash market. This marks a clear departure from the sustained selling pressure that had weighed on domestic indices in recent months.

Dr VK Vijayakumar, Chief Investment Strategist at Geojit Investments Ltd, attributed the turnaround directly to currency stability. 'The principal reason for this change in FPI activity is the stability and slow appreciation in the rupee,' he said.

Rupee Recovery Drives Sentiment Shift

The rupee has clawed back meaningfully from its low of 96.96 to the dollar — touched on 20 May — to close at 94.34 on 19 June. Analysts expect further appreciation in the coming weeks, which would reduce currency-related risk for dollar-denominated foreign investors holding Indian assets.

Adding to the positive outlook, substantial dollar inflows are anticipated through FCNR(B) bonds in FY27. Combined with a sharp decline in Brent crude to around $80 per barrel, this is expected to help India manage its Current Account Deficit (CAD) in FY27 without significant stress, according to the analyst.

Strong Earnings Provide Fundamental Support

Beyond the currency factor, India's corporate earnings picture is lending structural support to markets. The Nifty 500 posted FY26 earnings growth of 15.6%, beating expectations and reinforcing the fundamental case for Indian equities. Analysts noted this resilience is helping markets hold ground even amid global uncertainty.

However, a concern is emerging on the domestic front: monsoon progress has been below par so far this year, and analysts flagged this as a risk worth monitoring, given its implications for rural demand and inflation.

Global Factors: AI Trade and Concentration Risk

On the global stage, FPIs remain drawn to technology stocks in South Korea and Taiwan, particularly companies such as Samsung, SK Hynix, and TSMC, which stand to benefit from the ongoing artificial intelligence (AI) investment cycle. However, analysts noted that concentration risk in a handful of stocks in these markets is making some FPIs cautious.

This dynamic means FPIs may continue to buy Asian tech names on dips while selectively booking profits in India on market rallies — a tactical, rather than structural, approach to the region.

What to Watch Next

Market participants will closely track the rupee's trajectory, monsoon data, and crude oil price movements in the weeks ahead. A continued currency appreciation, alongside stable global risk appetite, could accelerate FPI inflows into Indian equities through the second half of 2025.