Global funds undeterred by India-Pakistan standoff; DII flows taper off

DIIs are booking profit on short-term gains in Indian stocks, which they made on bargain buying, analysts explained

Foreign investors continue to repose faith in the Indian stock market, despite the cross-border tensions between India and Pakistan post the Pahalgam terror attack. Global funds, data shows, have held the fort for Indian equities even as local funds turn slightly cautious amid war worries.

 

Foreign portfolio investors (FPIs) bought Indian stocks worth nearly ₹32,500 crore over the past eight trading sessions, with last Thursday's (April 24) buy value of ₹8,250.5 crore being the second biggest purchase this calendar year, according to NSE data. This is FIIs highest consecutive buying at least since 2024.

 

On April 23, the day after the shooting at Pahalgam, domestic equity benchmarks rose by over 0.6 per cent, with FIIs purchasing shares worth ₹3,332.93 crore. In the following two days, as diplomatic tensions between the countries escalated, the Nifty and Sensex declined by over 1 per cent. However, during those two days (April 24 and April 25), global funds continued to buy, investing ₹11,202.8 crore in the cash market.

 

With this, FPIs net selling stands reduced to ₹2,157.5 crore for the month of April, so far, down from over ₹34,600 crore prior to the recent buying. 

 

Domestic institutional investors (DIIs), on the other hand, sold shares worth ₹5,300 crore over the past eight days. On the day following the shooting incident, DIIs offloaded shares worth ₹1,234.46 crore, followed by an additional ₹534.54 crore selloff the next day. However, DIIs have bought stocks worth ₹17,145 crore so far in April.

 

"There is a distinct trend reversal in FIIs' strategy in India, which is happening, interestingly, at a time of heightened India-Pakistan tensions following the Pahalgam terror attack,” remarked VK Vijayakumar, chief investment strategist at Geojit Investments Limited.

 

DIIs, on their part, are booking profit on short-term gains in Indian stocks, which they made on bargain buying, analysts explained.

 

"The recent selling by domestic funds is more of a sign of profit booking, rather than them turning cautious on India. Remember, the Lehman crisis of 2008-09 taught DIIs to buy cheap when foreign investors panic exit, dragging the markets lower," said G Chokkalingam, founder and head of research, Equinomics Research.

 

"They accumulate when prices are depressed, and when the market recovers, they book profits. This reverse behaviour compared to FIIs has worked well for them," he added. 

 

Border standoff

 

On April 25, the BSE Sensex index plunged nearly 1,600 points in the intraday trade, while the NSE Nifty50 dipped below the 24,000-mark, to see the worst session since the US tariff-triggered rout.

 

The cross-border firing, soon after the April 22 Pahalgam terror attack, came as Islamabad halted all trade with India, while Delhi put a pause on the Indus Waters Treaty amid a series of countermeasures.

 

The quantum of FII inflow could rise once the India-Pakistan tensions subside, quipped Chokkalingam of Equinomics Research. Besides, India's relatively better trade relations with the US, falling US dollar index, and easing crude oil prices will make Indian equities better suited for foreign investors over the medium term, analysts added.

 

Notably, Indian stocks were the first major market to erase all losses triggered by US President Donald Trump’s reciprocal tariffs earlier this month, as the domestic market acted as a relative safe haven amid global volatility.