How Indian stocks saw highest monthly FII inflow in nearly 2 years

In August, Indian equities witnessed a record $3.1 billion inflow from foreign investors, marking the highest monthly FII buying since September 2024. This surge follows a four-month period of selling, with $2.1 billion invested in July. The renewed interest can be attributed to favorable stock valuations, strong Q1FY27 earnings, stable macroeconomic conditions, and a shift away from AI-dominated markets.

The Nifty 50 and Sensex, which fell around 5% between March and June, have since recovered, gaining about 1%. Mid and small-cap indices also increased by 5-6% during the same period. The Reserve Bank of India's decision to keep interest rates steady, despite potential future hikes, has further eased uncertainty. Financial services and automotive sectors attracted the most FII investments, followed by consumer services, healthcare, and IT.

However, experts predict the inflows will remain short-term and speculative, contingent on factors like crude oil prices, geopolitical stability, and tax policies. Removing capital gains tax has been suggested as a potential catalyst for more substantial FII interest in Indian equities.