FPIs log highest inflows in 17 months as MFs turn sellers in February

Foreign portfolio investors have turned strong buyers in Indian equities, even as mutual funds recorded their first net monthly outflow since 2023, marking a rare divergence in market behaviour

Domestic equity markets are witnessing a rare divergence in investor behaviour, with foreign portfolio investors (FPIs) turning net buyers and domestic mutual funds (MFs) moving in opposite directions.

 

So far this month, FPIs have emerged as strong net buyers, investing nearly ₹25,000 crore in Indian equities, while MFs have turned net sellers, pulling out close to ₹1,000 crore. The scale of foreign inflows is notable, marking the highest net FPI buying since September 2024.

 

The inflows offer some relief after a prolonged risk-off phase. Over the preceding 13 months, FPIs had withdrawn nearly ₹2 trillion from domestic equities. In contrast, MFs have recorded their first net monthly outflow since April 2023, snapping a long stretch of steady domestic support. Since 2025, MFs have injected almost ₹5.5 trillion into domestic stocks. Experts opine the latest MF selling is largely tactical rather than structural.

 

 

With markets rebounding sharply from Budget-related lows alongside rising foreign participation, domestic fund managers are believed to be booking profits, rebalancing portfolios and raising cash levels ahead of potential volatility from global macro events and upcoming earnings announcements.

 

The renewed foreign interest is not limited to India. Other emerging market (EM) peers such as China, Taiwan, Thailand and Brazil have also seen positive flows this month. Market participants attribute the trend to improving global risk appetite, particularly towards emerging markets, amid a broader de-dollarisation theme. According to a recent Elara Capital report, global emerging market equity funds are witnessing one of their strongest inflow phases since the 2016-18 cycle.

 

As a key constituent of the EM basket, India stands to benefit from allocations into global EM funds. Additionally, relatively attractive valuations in select pockets of the market following recent corrections have aided inflows.

 

Historically, strong FPI inflows have supported frontline indices, though sustained rallies typically require alignment between foreign and domestic investors.

 

Despite the positive foreign flows, Indian equities have lagged global peers this month, with the Nifty up just 0.7 per cent. In comparison, South Korea has rallied over 20 per cent while Thailand and Japan have gained around 10 per cent each.

 

“The Indian market has continued to underperform global peers. Year-to-date, the Nifty is down 3 per cent in USD terms. The drawdown has largely been driven by IT services, which are down around 15 per cent,” Nomura said in a note. It added that concerns around artificial intelligence (AI)-led deflationary pressures on IT services companies appear “premature and overdone”, and expected firms to realign and benefit from new business opportunities, retaining a positive view on the sector.

 

Going ahead, market direction is likely to hinge on the sustainability of foreign inflows and whether domestic investors return as net buyers once valuations stabilise and earnings visibility improves.