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Foreign portfolio investors (FPIs) have staged a good return to Indian equities in May, putting in a healthy Rs 18,620 crore thus far, according to depository numbers. This follows a net withdrawal of Rs 93,731 crore in the first quarter of 2025 — a sharp turnaround in foreign sentiment.

The restored optimism among international investors is being driven by two main tailwinds, according to experts: geopolitical peace following a claimed India-Pakistan ceasefire, and a 90-day reprieve in the current US-China trade conflict. These occurrences have created an international risk-on sentiment, diversifying capital back into emerging markets, led by India owing to its macro resilience and policy stability.

Here's a picture of the recent monthly FPI flows:

The figures undoubtedly show a change in foreign investment patterns with May witnessing the highest monthly inflow in more than five months.

As tranquillity has returned on all the geopolitical fronts and global inflation pressures have ebbed, institutional investors are increasingly turning towards large-cap stocks, particularly in segments such as banking, IT, and consumer. Experts feel the relative safety, quality earnings visibility, and liquidity in these stocks are behind the surge in inflows.

Whereas equities are experiencing a firm resurgence, the debt side has experienced an outflow of Rs 6,748 crore from the general category during May. Nevertheless, the Voluntary Retention Route (VRR) has recorded an inflow of Rs 1,193 crore, indicating selective long-term interest in Indian paper.

India's macroeconomic stability, policy continuity, and stable political environment continue to keep it a favourite long-term punt among foreign investors. Experts feel the good run could go on till June if overseas cues are positive and domestic growth data is in line. 

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