Foreign Investors Pump Over ₹3,300 Crore into Indian Equities Amid RBI Rate Cut
Optimism grows as RBI’s surprise rate cut boosts investor sentiment, but June’s overall FPI trend still shows a net outflow
Foreign Investments Surge on Policy Boost
During the prior week, India’s equity markets witnessed a strong influx of global funds, with foreign portfolio investors injecting ₹3,346.94 crore into stocks. This sudden uptick in investments came in the wake of the Reserve Bank of India’s unexpected decision to slash interest rates—injecting fresh optimism across the markets.
According to figures released by the National Securities Depository Limited (NSDL), foreign portfolio investors (FPIs) turned bullish on Indian stocks, Motivated by the Reserve Bank of India’s recent policy direction focused on boosting economic momentum by making credit more affordable.
RBI’s Surprise Move Spurs Investor Confidence
In its June review, the Monetary Policy Committee (MPC) surprised the markets by announcing an unanticipated 50 basis point cut in the repo rate, bringing it down to 5.5%. This aggressive rate reduction signaled a dovish outlook and was seen as a move to stimulate economic activity and liquidity.
This development boosted investor confidence, both domestic and international, as it implied improved profitability for Indian corporates and a supportive environment for capital markets. The policy shift not only influenced sentiment positively but also provided FPIs a reason to increase exposure to Indian equities.
June’s Net Investment Still in the Red
Although last week recorded promising capital inflows, the cumulative foreign portfolio investment in equities for June continues to reflect a net outflow. According to data released by the NSDL, foreign portfolio investors have withdrawn a total of ₹5,402 crore from Indian equities since the beginning of this month.
The substantial withdrawal of ₹3,275.76 crore on Friday—the final trading day of the week—dented the net weekly gains. This outflow trimmed the cumulative investment for the week, offsetting the earlier optimism and reflecting cautious investor behavior ahead of global economic events and domestic earnings data.
Volatility Persists Despite May’s Strong Performance
May had painted a different picture altogether. May stood out as the peak month for overseas portfolio activity in 2025, recording a remarkable ₹19,860 crore in net capital inflows—the highest so far this year. This remarkable performance was attributed to favorable global cues, strong earnings by Indian companies, and steady macroeconomic indicators.
However, investor activity in the first quarter of the calendar year reflected a more volatile trend. In March, overseas investors pulled out ₹3,973 crore from Indian equities, adding to the substantial capital flight seen in the first two months of the year, when January and February witnessed hefty withdrawals of ₹78,027 crore and ₹34,574 crore respectively—underscoring a marked decline in foreign investment during the initial quarter.
The stark fluctuations in capital flow highlight the global nature of investor sentiment, influenced by factors ranging from U.S. Federal Reserve decisions and geopolitical tensions to local inflation numbers and policy measures.
Monetary Easing and Market Response
The RBI’s latest policy action is a part of its broader monetary easing strategy aimed at balancing inflation control with the need to accelerate growth. With inflation appearing to be on a moderate trajectory and industrial growth indicators needing support, the central bank’s move was well-received in most financial circles.
The positive response from foreign investors in the immediate aftermath of the rate cut reinforces the close linkage between monetary policy and equity market performance. Lower interest rates generally improve corporate profitability, reduce cost of capital, and boost consumption—all of which act as catalysts for higher stock valuations.
What Lies Ahead for Foreign Capital?
While the recent rate cut has ignited short-term optimism, the broader picture for foreign investment remains mixed. FPIs continue to assess risks around global recessionary trends, volatile commodity prices, and central bank actions in developed economies.
Moreover, the net outflows in June suggest that investor caution hasn’t entirely subsided. While some funds are re-entering the Indian market, others are adopting a wait-and-watch approach, looking for more clarity on macroeconomic stability and long-term growth projections.
In the coming weeks, market watchers expect foreign investment activity to remain influenced by domestic earnings releases, upcoming monsoon forecasts, and any hints from the RBI regarding future rate actions.
Final Thoughts
Last week’s inflow of ₹3,346.94 crore from FPIs into Indian equities highlights the renewed investor confidence following the Reserve Bank of India’s decision to reduce the repo rate. While this move temporarily reversed the bearish trend seen in the month of June, overall foreign portfolio investment remains in negative territory for the month so far.
Despite the recent boost, the volatility in foreign fund movements suggests that market sentiment remains fragile. While May saw robust FPI participation, the outflows earlier this year—and now again in June—underline the importance of stable macroeconomic signals and continued policy support.
Looking forward, sustained FPI interest will depend on how the Indian economy performs in the face of global headwinds and whether the RBI’s accommodative stance yields long-term benefits for the corporate sector.
:
The image added is for representation purposes only
