Foreign institutional investors (FIIs) have begun returning selectively to Indian equity markets, driven by a stabilising rupee, a sharp fall in crude oil prices, and heightened volatility in South Korean and Taiwanese markets that has forced portfolio rebalancing, according to market analysts. The shift marks a meaningful break from the relentless FII selling that weighed on Indian equities through much of the first half of 2025.

FII Selling Tapers Off

During the nine trading sessions between 15 June and 25 June, FIIs were net buyers in the cash market on five of those days, even if the quantum of purchases remained modest. Analysts say the pattern signals that the phase of aggressive, sustained selling is effectively over.

'The big relentless FPI selling appears to be over,' analysts noted, pointing to two structural shifts that have altered the calculus for foreign portfolio investors.

Rupee Stability and Crude Crash Drive the Shift

Dr VK Vijayakumar, Chief Investment Strategist at Geojit Investments Ltd, identified a firming rupee as the first key factor. 'Rupee has stabilised and even appreciated from the low of 96.96 to the dollar reached on 15 May. Now the rupee is about 94.40 to the dollar,' he said. He added that it 'doesn't make sense for FPIs to sell when rupee is appreciating.'

The second catalyst is turbulence in Asian peer markets. On one session, the South Korean market crashed by 8 per cent, triggering a trading freeze. FPIs sitting on large profits in South Korea and Taiwan have been liquidating those positions — and a portion of those flows is now being redirected toward India. 'This is persuading FIIs to again consider India despite its relative weak earnings,' Dr Vijayakumar noted.

Complementing this, crude oil prices have fallen sharply to below $73 per barrel — a significant positive for an import-dependent economy like India. Analysts say the Balance of Payments pressure that had been building is now easing, reducing a key macro headwind that had been driving FII outflows.

India-US Trade Deal Optimism Adds to Sentiment

Optimism surrounding a potential India–US trade agreement has also bolstered investor confidence. The prospect of a deal has lent an additional layer of support to market sentiment, complementing the macro tailwinds from lower crude and a stronger rupee.

Caution Still Warranted

Ajit Mishra, Senior Vice President of Research at Religare Broking Ltd, cautioned that the recovery does not warrant complacency. 'Slowing domestic macroeconomic indicators and lingering uncertainty surrounding global monetary policy warrant a disciplined and stock-specific investment approach,' he said.

Globally, the trajectory of crude oil prices, geopolitical developments in West Asia, and trends in FII flows will remain key market drivers. Analysts say it may take more time before FPIs transition from selective buyers to sustained, large-scale buyers in Indian markets.