Foreign investors are returning to Indian stocks at the fastest pace in eight months, supported by stabilizing corporate earnings and a US trade deal that improves the outlook for the months ahead.
Global funds have bought nearly $2.1 billion of local shares so far in February, putting inflows on track for the strongest since June. The rebound follows last year’s record exodus, when investors shifted exposure to artificial intelligence-driven markets such as the US, China and South Korea.
The rebound in inflows suggests some of the pressures that had been weighing on Indian equities are starting to ease. A long-awaited trade deal with the US earlier this month removed a key source of uncertainty for the $5.2 trillion market. Improving corporate results are also reviving the case for a rotation into Indian stocks, which have trailed most Asian and emerging market peers since early 2025.
“We are seeing a positive momentum toward Indian equities,” said Sumeet Rohra, a fund manager at Smartsun in Singapore. With projection of economy’s nominal growth rate of about 10% in fiscal 2027, “there is a good chance for corporate earnings to grow at about 15%, potentially making India a star performer going ahead.”
While foreign investors largely cut exposure in 2025, local investors, encouraged by policy continuity, stepped in to help the MSCI India Index gain 8.1% last year.
Still, India lagged the region: the local gauge’s advance was far behind the MSCI Asia Pacific Index’s 25% surge in 2025. That underperformance has left valuations relatively low. MSCI India members are trading about 4% below their five‑year average price‑to‑earnings ratio, Bloomberg data show — a discount that could draw investors back.
Meanwhile, signs point to earnings-driven momentum. Sales for FTSE India Index companies rose 10% year-on-year in the December quarter, while net income climbed 13%, HSBC Holdings Plc strategists including Prerna Garg wrote in a note.
Broader earnings projections remain firm. Consensus estimates for over 250 companies suggest fiscal 2027 earnings growth of 16%, according to Nomura Holdings Inc. strategist Saion Mukherjee.
“The earnings are supported by a recovery in the nominal GDP growth in FY27, cyclical recovery in private capex, potential revival in exports and sustained momentum in consumption in the near-term,” Mukherjee said.
Financial companies remain among top picks for global investors while they have added metals and capital goods sector shares in recent months, according to data compiled by National Securities Depository Ltd.
Some investors caution against viewing the latest inflows as the start of a structural bull run. A selloff in India’s software and tech‑driven firms has wiped out more than $50 billion in market value this month on concerns over AI’s impact on their business models.
Part of foreign funds’ buying is tactical, spurred by softer US yields and relative emerging‑market appeal, said Sonam Srivastava, founder of Wright Research Portfolio Management Services. “If global liquidity tightens again, flows can reverse,” she said.
Still, liquidity isn’t the whole story, Srivastava added. Global positioning toward India remains tentative but clear.
“With more reasonable valuations and earnings revisions stabilizing, they are moving back toward neutral weight,” she said.
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