Foreign portfolio investors (FPIs) purchased Indian equity worth ₹30,918 crore in August 2024 (up to 29 August), marking the second consecutive month of net buying in domestic markets. Of the total inflow, ₹18,790 crore came through stock exchanges while ₹12,128 crore flowed in via the primary market and other channels.

Key Drivers Behind FPI Inflows

According to Dr VK Vijayakumar, Chief Investment Strategist at Geojit Investments Ltd, three factors are primarily driving foreign money back into India: the reversal of the carry trade, stability in the Indian rupee, and — most critically — improving corporate earnings growth. The combination has made India a relatively attractive destination for global capital at a time when several emerging markets remain under pressure.

FPIs Pivot Towards Mid- and Small-Caps

A notable shift in FPI strategy is the increasing allocation toward SMIDs — mid- and small-cap stocks. Vijayakumar noted that growth and earnings momentum in the SMID segment are significantly stronger than in large-caps, and this directional preference is expected to persist. The trend aligns with broader domestic liquidity patterns, where retail and institutional investors have also concentrated activity in the broader market.

DII Buying Cushions Market on Volatile Friday

On Friday, 29 August, foreign institutional investor (FII) selling pressure was largely absorbed by strong domestic institutional investor (DII) participation. Domestic institutions recorded net purchases of approximately ₹5,184 crore, providing a floor to the market. On a month-to-date basis, FIIs remained marginal net buyers at around ₹454 crore — a notable reversal after several months of sustained foreign outflows, according to analysts.

Weekly Market Performance and CAS Volatility

Indian equity benchmarks ended the week on a cautious note, logging their third consecutive week of declines. The Nifty50 slipped 0.31% to close at 24,175.65, while the BSE Sensex fell 0.36% to settle at 77,264.51. Headwinds included global interest rate concerns, geopolitical uncertainty, and volatility linked to the newly introduced Closing Auction Session (CAS) for futures and options stocks.

Ajit Mishra, Senior Vice President of Research at Religare Broking Ltd, flagged that the monthly derivatives expiry triggered sharp price swings during the closing auction, raising concerns about short-term volatility and price dislocations — particularly in heavyweight index constituents. Despite benchmark weakness, the Midcap and Smallcap indices posted gains for the week, reflecting the resilience of domestic liquidity and stock-specific participation in the broader market.

With FPI sentiment turning constructive and domestic institutions providing consistent support, the trajectory of foreign flows in the coming weeks will hinge on global macro signals and the pace of India's earnings upgrades.