Since the US and Iran reached an initial agreement to reopen the Strait of Hormuz on June 15, foreign portfolio investors have been net buyers in seven out of the eight trading sessions. This shift has led to a significant reduction in the outflow of foreign funds from Indian equities, with sales amounting to ₹31,823 crore so far in June, marking the lowest monthly outflow since December 2025.
The easing of geopolitical tensions in West Asia has contributed to a moderation in oil prices, which in turn has helped stabilize foreign investor sentiment. Riddhiman Jain, managing director and head of investment strategy and solutions at Waterfield Advisors, noted that the Reserve Bank of India's measures to support the rupee also played a role in reducing outflows. Meanwhile, the rally in semiconductor and AI stocks in South Korea and Taiwan lost momentum due to valuation concerns.
March witnessed the largest monthly outflow on record, with foreign investors withdrawing over ₹1.15 lakh crore from Indian equities following the outbreak of war on February 28, which had driven oil prices sharply higher. However, the tentative peace deal has since eased concerns, leading to a retreat in crude prices and a 2.2% gain in the Nifty index.
“Easing oil prices on receding geopolitical tensions in West Asia led to the foreign sell-off abating to some extent.”
Riddhiman Jain, Managing Director and Head of Investment Strategy and Solutions, Waterfield Advisors
Despite the reduction in foreign outflows, domestic institutional investors have continued their purchasing spree, buying shares worth ₹76,156 crore in June. This marks the 35th consecutive month of net buying by domestic investors. Analysts suggest that while the decline in oil prices has removed a significant headwind for India, sustained foreign inflows will depend on stronger earnings and economic growth.
Siddarth Bhamre, head of institutional research at Asit C Mehta, highlighted that until overseas investors shift their preference towards India, major foreign inflows are unlikely. He emphasized the need for earning visibility to attract foreign sentiment, which remains subdued.
“Until overseas investors continue to prefer other markets over India, and there is a slowdown in that rally, no major foreign inflows are expected.”
Siddarth Bhamre, Head of Institutional Research, Asit C Mehta
India has seen foreigners as net sellers to the tune of nearly ₹2.90 lakh crore this year, the highest ever in a year, following a pullout of ₹2.39 lakh crore the previous year. The Nifty index has declined by 8% during this period. Jain of Waterfield Advisors believes that India could emerge as a value story, especially as geopolitical tensions wane, but noted that overseas flows tend to follow price momentum rather than lead it.
Background
The reduction in foreign outflows comes after a period of heightened geopolitical tensions and volatile oil prices, which had previously led to record outflows from Indian equities. The reopening of the Strait of Hormuz and subsequent easing of tensions have provided a more stable environment for foreign investors.
Looking ahead, global investors are likely to remain cautious, with first quarter earnings serving as a critical test. While a runaway rally is not anticipated, the sentiment has turned slightly positive. Domestic investors have shown resilience, although there is some fatigue as reflected in the decline of SIP inflows in May. The market will be closely watching for signs of earnings growth and economic recovery to sustain foreign interest.
