FIIs turn buyers for second straight month; ₹29,631 cr Aug equity inflow hits 23-month high

Foreign institutional investors (FIIs) are showing signs of returning to Indian equities after a prolonged selling spree, with August marking their second consecutive month of net buying and the strongest monthly inflow in nearly two years.

FIIs invested ₹29,631 crore in Indian equities in August, their highest monthly inflow since September 2024, according to data from the National Securities Depository. The buying follows a ₹20,200-crore inflow in July, marking the first time this calendar year that foreign investors have remained net buyers for two consecutive months.

Two-month buying streak

The August inflow is particularly significant as it comes after four consecutive months of heavy selling. Foreign investors had pulled out ₹49,340 crore from Indian equities in June alone, making the latest two-month buying streak a potential early sign that the tide could be turning.

The shift, however, comes with an important caveat: FIIs remain large net sellers for the year so far. Their recent buying therefore represents a recovery from a prolonged period of risk aversion rather than a full-fledged return of foreign capital to Indian equities, market analysts said.

In 2026, FIIs have remained persistent net sellers in the cash market, with net outflows rising to ₹3.5 lakh crore, compared with ₹3.06 lakh crore in 2025. In contrast, DIIs continued to absorb the selling pressure, remaining net buyers to the tune of ₹5.68 lakh crore in the first eight months of 2026, although this was lower than their ₹7.88 lakh crore net investment during the corresponding period of 2025.

Earnings improve India’s case

Still, several factors appear to be improving India’s investment case. Stronger-than-expected corporate earnings, measures by the Reserve Bank of India to support the rupee and attract foreign capital, and a relative improvement in valuations have helped revive sentiment.

“If you look at the numbers, price-to-earnings (P/E) ratios are around 20-23 times, while earnings visibility has improved. We were once the best-performing major market with little earnings visibility; today, we are among the least-performing markets, but earnings visibility has gone up,” said Vaibhav Chugh, CEO of Abakkus Mutual Fund.

He expects foreign investors to increasingly focus on earnings rather than short-term market narratives. “I don’t think they look at narratives. They look at numbers, and numbers are quite conducive for India to become very, very attractive for them,” Chugh said.

Is the FII tide turning?

The key question is whether the August buying marks the beginning of a sustained reallocation towards India or merely a tactical pause in the longer foreign selling cycle.

For now, global factors remain a significant risk. Elevated US bond yields, crude oil prices and geopolitical tensions could keep foreign investors cautious. Brent crude and US Treasury yields have risen sharply in recent days, adding to concerns over inflation, the rupee and global risk appetite.

“The key indicators to watch in the coming months will be crude oil, US bond yields, global risk sentiment and the trajectory of corporate earnings,” said Pabitro Mukherjee, Deputy Vice President-Research, Bajaj Broking.

If earnings growth becomes broader and valuations remain relatively attractive, India could increasingly compete for global capital with other emerging markets. But a sustained rise in oil prices or global bond yields could once again tilt the balance in favour of developed markets and other emerging markets.

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