FPIs turn net buyers as Fed rate cut boosts emerging market appeal 

Friday, September 19, recorded the highest single-day inflow of ₹2,163.71 crore, with equity investments alone contributing ₹785.11 crore. 

Foreign Portfolio Investors (FPIs) emerged as net buyers in Indian markets this week, pumping in ₹11,674.51 crore across five trading sessions ending September 19, marking a significant shift from recent selling pressure. After a small outflow on September 16, FPIs pumped in across equities and debt over the next three sessions, signalling renewed appetite for Indian assets.

The week’s positive flows were driven by net equity investments of ₹1,836.82 crore, while debt instruments saw net inflows of ₹9,599.85 crore. Mutual fund investments contributed an additional ₹181.31 crore to the overall tally.

Friday, September 19, recorded the highest single-day inflow of ₹2,163.71 crore, with equity investments alone contributing ₹785.11 crore. Debt-FAR (Fully Accessible Route) bonds attracted ₹936.15 crore on the same day, indicating strong foreign appetite for Indian government securities.

“Foreign Institutional Investors showed a modest but noticeable return to Indian equities during the week, after a period of mixed activity in prior weeks,” said Himanshu Srivastava, Principal, Manager Research, Morningstar Investment Research India. “Though the inflows were not large, the trend reflected improving foreign investor sentiment toward Indian markets.”

The turnaround was particularly evident on Wednesday, September 17, when FPIs invested ₹6,491.01 crore – the week’s peak – driven by substantial debt purchases worth ₹4,776.22 crore and equity investments of ₹1,645.65 crore.

However, the week began with mixed signals. On Tuesday, September 16, FPIs pulled out ₹336.45 crore from equities while maintaining overall positive flows of ₹154.72 crore due to debt investments.

The Federal Reserve’s decision on September 17 to cut interest rates by 25 basis points emerged as a key catalyst. “This move reduced global borrowing costs, weakened the US dollar, and made emerging market equities more attractive to global investors seeking higher returns,” Srivastava noted.

Debt markets witnessed significant action throughout the week. General Limit debt securities saw net inflows of ₹4,024.54 crore over five days, while Fully Accessible Route bonds attracted ₹1,763.38 crore. Voluntary Retention Route (VRR) debt instruments faced net outflows of ₹56.50 crore for the week.

“In parallel, positive developments in US-India trade negotiations helped lift sentiment. The prospect of lower trade frictions improves the outlook for Indian exporters and reduces risk premiums for sectors exposed to the global economy, particularly IT and manufacturing,” Srivastava added.

Domestic factors also supported foreign investor confidence. “India’s macroeconomic stability added further support. Low inflation, stable growth forecasts, and a manageable current account situation reinforced India’s status as a relatively resilient emerging market destination,” the analyst observed.

Primary market investments showed strength, particularly on Wednesday when FPIs committed ₹4,965.86 crore through this route, primarily in debt instruments.

The derivatives market reflected heightened activity, with FPIs maintaining substantial positions across index options worth ₹352,971 crore and stock futures totalling ₹396,718.53 crore as of September 19.

“Expectations of currency stability, aided by the Fed’s dovish stance, diminished concerns over rupee volatility – another factor that foreign investors consider when allocating capital to emerging markets like India,” Srivastava explained.

Despite the positive weekly trend, caution persists among foreign investors. “Profit-taking and global uncertainties, including tariffs and geopolitical risks, kept flows cautious rather than aggressive. Some FIIs also used the rally to trim positions,” the market expert noted.

The week’s performance signals a potential shift in FPI strategy, with investors balancing between capitalizing on global monetary easing and managing exposure to emerging market risks.

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Published on September 20, 2025