Foreign institutional investors (FIIs) reversed course to become net buyers in Indian equity markets this week, deploying ₹4,670 crore based on provisional exchange data. The shift marks a notable change in sentiment after FIIs were net sellers of roughly $3 billion in June.

Domestic Investors Hold Steady

Domestic institutional investors (DIIs) continued their consistent buying trend, purchasing ₹8,280 crore during the same period. DIIs have served as a counterbalance to FII volatility through much of the past year, absorbing outflows that would otherwise have pressured index levels more sharply.

Adding to the bullish domestic backdrop, mutual fund SIP contributions climbed to a three-month high of ₹31,780 crore in June, according to data released by the Association of Mutual Funds in India (AMFI). This represents a 2.7% month-on-month rise from ₹30,950 crore in May, and a 16.5% year-on-year jump from ₹27,270 crore recorded in June 2025.

Market Volatility and the Nifty Swing

Pabitro Mukherjee, Deputy Vice President – Research at Bajaj Broking, noted that benchmark indices snapped a four-week winning streak, trading with high volatility and closing marginally lower last week. 'Nifty started the week on a positive note and rallied to form an intra-week high of 24,530 on Tuesday's session,' he said.

A sharp mid-week decline, triggered by renewed geopolitical tensions between the US and Iran, erased recent gains and pushed the index to an intra-week low of 23,805 on Wednesday. The index staged a partial recovery in the final two sessions, closing near 24,200 — down 0.3% for the week.

Policy Tailwinds Boosting FII Confidence

According to market analysts, improvements to the tax structure for foreign debt investors and policy measures designed to attract foreign currency inflows have helped restore institutional confidence. FII participation in domestic debt markets has been particularly notable, with flows estimated at $5–$6 billion, according to market watchers.

The Longer-Term FII Picture

Over the past 12 months, the picture has been uneven. Indian primary markets recorded FII net inflows of $8.1 billion, while secondary markets saw FII net outflows of $49.3 billion, according to a report by JM Financial Institutional. This divergence underscores that while new issuances continue to attract foreign capital, the secondary equity market has faced sustained FII selling pressure — a trend this week's buying may be beginning to reverse.

With SIP flows at a three-month high and FIIs returning to the buy side, the near-term direction of the market will hinge on global risk cues, particularly any further escalation in US-Iran tensions and the trajectory of US monetary policy.