FPI buying returns to Dalal Street as global investors rethink AI bets

Mumbai: In recent weeks, foreign portfolio investors (FPIs) have shifted from selling to buying Indian equities, adding nearly $1.2 billion over the past 10 trading sessions. This change could be linked to worries about the artificial intelligence (AI) market, causing some overseas investors to move their investments to Indian stocks, which have underperformed relative to regional peers.

However, these purchases might be short-term reactions to avoid the AI sell-off rather than a renewed confidence in India from global investors, according to Ritesh Jain, founder of Pinetree Macro. During the period from October 16 to October 30, FPIs made net purchases of $1.2 billion in the secondary market, with $3.6 billion bought on October 30 alone, as reported by provisional NSE data.

In the primary market, they invested $600 million, with a significant portion directed towards Jio Telecom's $30.188 billion IPO. The shift in global investment flows is attributed to signs of deflation in the AI trade. When AI stocks perform well, funds flow from other regions to U.S. AI stocks by converting dollars; conversely, when selling these stocks, investors exit the dollar.

Indian markets saw a mixed performance in October, with the Sensex and Nifty up 1.9% and 2.7%, respectively, while the BSE Midcap 150 and BSE SmallCap 250 declined 4% and 6.3%, respectively. The Nifty IT index rose 17%. Overseas markets experienced significant declines, including the Nasdaq and Japan's Nikkei falling 5% each, Hong Kong's Hang Seng down 5.5%, Shenzhen by 13.7%, and Taiwan and South Korea's Kospi falling 8% and 14%, respectively.

Fund managers are identifying selective opportunities in India, driven by better growth prospects and opportunities in specific technology sectors. Strategists noted that only a small portion of the inflows reflect international investors returning to India based on a bottom-up analysis, attracted by improving growth and technology sector opportunities.

The recent buying trend follows a prolonged period of foreign outflows, totaling over $32.7 billion between January 1 and October 15, amid geopolitical tensions, rising oil prices, increasing bond yields, currency depreciation, earnings uncertainty, and inflation. Overseas investors also sold $18.8 billion in equities in 2025. Despite overseas investors purchasing $6.15 billion in Indian equities between mid-June and August, they withdrew $8.6 billion in September and the first half of October due to heightened risk-off sentiment, primarily driven by global factors like AI trade strength and higher energy prices, rather than domestic fundamentals.

BlackRock remains strategically bullish on India and closely monitors the recent increase in foreign inflows.