Foreign Investors Boost Indian Stock Market Amid Tensions with Pakistan

Despite escalating tensions between India and Pakistan, foreign investors are showing unwavering confidence in Indian equities. For the 14th consecutive session, overseas investors have been net buyers, providing robust support to the Indian stock market. This prolonged buying spree has contributed to a remarkable increase in both the Nifty 50 and Sensex, which have surged over 9% during this period, outperforming their counterparts in the West and Asia.

The Reasons Behind Foreign Investment in India

After a phase of selling following record highs in September, foreign institutional investors (FIIs) are making a comeback. Their renewed interest stems from the belief that India’s economy, driven primarily by domestic consumption, is well-positioned to withstand global trade slowdowns better than many of its peers.

Moreover, optimism is growing that India could be one of the first countries to finalize a trade agreement with the United States. Recently, former President Donald Trump expressed a positive outlook on the ongoing negotiations, hinting that both nations are nearing a tariff agreement.

Market Recovery and Domestic Support

Following a significant withdrawal of global funds from Indian equities after October 2024, domestic investors and institutional buying played a crucial role in the market’s recovery in March, which has continued into April. With a combination of foreign portfolio investment (FPI) inflows and domestic support, Indian benchmark indices are now nearing four-month highs.

This turnaround is further bolstered by favorable domestic economic indicators. The Reserve Bank of India (RBI) has cut the repo rate twice and injected substantial liquidity into the financial system to stimulate lending.

Shift Toward Large Caps

Experts note a marked shift in market preference towards large-cap stocks as FIIs steer clear of mid- and small-cap equities, which they consider overvalued. Dr. VK Vijayakumar, Chief Investment Strategist at Geojit Financial Services, points out that the unique nature of India’s recent military operations, dubbed "Operation Sindoor," has not disrupted market sentiments. He believes that the market has already priced in any potential retaliatory actions, ensuring stability.

Dr. Vijayakumar highlights that the primary driver behind the market’s current resilience is the sustained FII buying, which has totaled approximately ₹43,940 crore in cash markets over the last two weeks. He emphasizes that global economic factors, including a weakening dollar and slower growth projections for the US and China in 2025, give India an edge in terms of growth potential.

Investors Should Stay Vigilant

While the sentiment remains positive, Dr. Vijayakumar advises investors to keep an eye on developments at the border. The ongoing geopolitical situation underscores the importance of monitoring external factors that could impact market dynamics.

In conclusion, the growing interest of foreign investors in Indian stocks, combined with supportive domestic policies and the strategic focus on large-cap stocks, signals a promising outlook for the Indian stock market despite external challenges. The market appears to be on a resilient path, making it an intriguing space for investors looking for growth opportunities.