Foreign Portfolio Investors Return to D-Street with Over Rs 33,000 Crore Investment, Leaving IT Sector Behind
Foreign portfolio investors have made a significant return to the Indian equity market, infusing a remarkable ₹33,487 crore across 15 sectors in the first half of February. This surge in investment marks the strongest fortnightly buying activity since April 2025, with capital goods, financial services, and oil & gas stocks attracting the majority of the inflows. The renewed interest from global investors comes amid a backdrop of positive sentiment following recent trade agreements and government initiatives.
Capital Goods Sector Sees Major Inflows
The capital goods sector emerged as the standout performer, drawing in ₹8,032 crore between February 1 and 15, a substantial increase from ₹2,761 crore in January. This surge was partly fueled by the Indian government’s ₹4,470 crore stake sale in Bharat Heavy Electricals Limited (BHEL), which bolstered market confidence. Siddarth Bhamre, head of Research at Asit C Mehta Intermediates, noted that the capital goods sector had previously underperformed, but the absence of negative budget announcements allowed global investors to reallocate their funds favorably. Additionally, the newly announced US-India trade deal framework has positively influenced investor sentiment across various sectors, including textiles and gems and jewellery.
Financial Services Experience a Turnaround
The financial services sector also witnessed a notable turnaround, attracting ₹6,175 crore in the first half of February after experiencing outflows of ₹8,592 crore in January. Rajesh Singhla, CEO and fund manager at Alpha AIF, attributed this rebound to strong third-quarter earnings reported by banks and financial companies. Despite this positive trend, he cautioned that the sector’s valuations remain unappealing, which could temper future investment enthusiasm. Additionally, foreign investors purchased ₹4,678 crore worth of oil and gas shares during the same period, indicating a broader interest in sectors tied to the real economy.
Information Technology Faces Continued Challenges
Despite the overall positive trend in foreign investments, the information technology (IT) sector has struggled significantly, with overseas investors selling off ₹13,812 crore across eight sectors in the first half of February. The IT sector alone accounted for over ₹10,000 crore of these outflows, reflecting ongoing concerns about the impact of AI-led disruptions on software services exporters. Bhamre highlighted that fears surrounding AI’s potential to reduce labor intensity in the sector could lead to further selling. The Nifty IT index has already seen a nearly 15% decline this year, contrasting sharply with a mere 2.6% drop in the benchmark Nifty index.
Market Outlook and Investor Sentiment
The current market performance underscores the shifting dynamics among foreign investors. While the sell-off in IT stocks has been pronounced, Singhla suggested that the extent of the selling may have been excessive. He argued that much of the foreign selling was driven by sentiment rather than fundamentals, as fears of declining earnings due to AI disruptions may have led to an overreaction in the market. As investors reassess their strategies, the focus appears to be shifting from traditional services to sectors that are more closely aligned with tangible economic growth.
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