$1 billion in 3 weeks! Why FII dollars are chasing Indian stocks once again

Foreign Institutional Investors (FIIs) have been on a shopping spree in the past 3 weeks investing a mammoth $1 billion in the Indian markets. Barring a huge deal in March, FIIs have been net sellers in each of the three months of 2023. The premium valuations of Indian markets meant that FIIs withdrew from India and diverted these funds to the other emerging markets (EMs), which traded at cheaper valuations than India.

So why did FIIs make a comeback to India?
After a correction of nearly 10% from all-time highs, Indian broader market indices which were trading at exorbitant premiums have started to trade at reasonable valuations. Additionally, a sharp rally in EM peers coupled with a corresponding surge in earnings has eliminated the premium, prompting FIIs to flock back to India.


The above chart compares Nifty’s Price to Earning (PE) ratio with its 5 and 10-Year Average PE. Nifty currently trades at a PE Ratio of 20.65x which is well below the 5-Year and 10-Year Average PE of 24.99x and 23.53x respectively. Previously, I mentioned in my article that whenever the index trades below its historical averages, the one-year forward returns have been comparatively higher. Therefore, any fall in PE would make markets even more attractive for FIIs.

Further, as per a recent International Monetary Fund (IMF) report, India’s Real GDP is projected to grow by 5.9% in FY2023, which is the highest in the world. It is further projected to grow by 6.3% in FY24, which remains a tad behind Vietnam’s 6.9%.

Globally, the world is facing recessionary trends. India’s EM peers grapple with their own challenges related to geopolitics, debt, demographics and political stability. In such a macroeconomic uncertain environment, India’s potential to grow unprecedentedly with its resilient and stable macros makes it one of the most attractive bets for FIIs.

The banking crisis across the US and Europe further augments the already existing crisis of rising inflation with recession. In its latest meeting, the Fed hiked the rates by 25 bps, making it look like we are closer to a rate hike pause. A pause or a cut in the rate hikes would benefit India as FIIs would have an alternative opportunity to invest their funds to earn a higher return.

With its robust economic fundamentals, reasonable valuations, unparalleled growth potential, and the possibility of a pause in rate hikes, India emerges as a compelling long-term investment destination for FIIs.


The Benchmark index started the week with a negative note and had formed a bearish engulfing candle stick pattern on the daily time frame. After forming a bearish candle stick pattern, prices continued to trade lower and ultimately formed a strong resistance near 17,850 levels.

Nifty50 on the weekly chart broke its three weeks of continuous upside and slipped into weakness, ultimately closing at 17,624 levels with a loss of 1.14%. On the daily chart, the previous week's index witnessed a falling channel pattern breakout but failed to show any positive price action further than that and has retested its breakout levels.

The index from the last three trading sessions has been trading in a very narrow range of almost 100 points and has formed a small candle on the daily chart. The momentum oscillator RSI (14) has also traded above its breakout levels and firmly held above 50 levels.

Over the near term, the trend is likely to remain in a bullish to sideways tone as the bullish breakout of a falling channel pattern is still valid. In the coming days, 17,500 - 17,7400 will be sacrosanct support for the index, while 17,850 could be an immediate hurdle. A break above 17,850 levels will infuse buying towards 18,000 levels. Similarly, a break below 17,400 will open the gate for 17,200 levels on the lower side.