The Indian stock market has made a dramatic return to life, riding a tide of Foreign Institutional Investor (FII) flows that have filled investors and analysts alike with a new sense of optimism. Following months of turmoil and uncertainty, indices like the Nifty 50 and the BSE Sensex have bounced back strongly, wiping out past losses. The unexpected increase in foreign investment along with the improvement in macroeconomic fundamentals has reignited the hope of a sustained rally. But the basic issue is: Is this recovery sustained enough to continue, or will it prove only a temporary kick in the trousers fuelled by transient market forces?
March 2025 witnessed the Nifty 50 index gaining a stunning 6.3 percent, its best performance in more than one year, ending five months of decline and posting a 5.34 percent return for the financial year. Likewise, the BSE Sensex ended the financial year in the black with a gain of 5.1 percent due to the confidence investors exhibited in markets, the undervalued shares, and new foreign flows.
The last five sessions of March saw around US$2.65 billion in foreign institutional investment in Indian equities, greatly influencing the countenance of markets. However, despite this delayed resurgence, there was a net outflow of US$15.57 billion for the fiscal year, underscoring the broader volatility and risk aversion that had persisted in the months prior.
A more detailed examination of the concluding trading week of March shows significant volatility in FII trading activity:
| Date | Gross Purchase (Rs/Crores) | Gross Sale (Rs/Crores) | Net Purchase (Rs/Crores) |
| March 24 | 15,777.73 | 12,721.97 | 3,055.76 |
| March 25 | 19,066.28 | 13,694.71 | 5,371.57 |
| March 26 | 14,316.32 | 12,075.77 | 2,240.55 |
| March 27 | 31,783.75 | 20,672.50 | 11,111.25 |
| March 28 | 11,508.47 | 15,861.29 | -4,352.82 |
Even these numbers show a positive trend, the precipitous fall in net purchases on March 28 makes one wonder if it was a short-lived thrust or a part of an investment push of a longer duration.
These have become some of the foremost drivers triggering renewed interest among FIIs in Indian equities:
Attractive Valuations: A sharp correction of almost 16 percent since the high of September 2024 made it attractive for foreign investors to buy.
Rupee Appreciation: With the rupee appreciating, Indian assets have become more lucrative for foreign investors, thus enhancing their return potential on conversion.
Macroeconomic Stability: Investor confidence has thus been further buttressed by declining inflation concerns, better corporate earnings, and reasonably stable economic growth estimates.
Short Covering: As stock prices rose, many investors were compelled to cover their short bets, which increased the buying pressure.
Positive so far, but rather critical factors will need to be accounted for if such a rally is to be sustained:
Corporate Earnings Performance: Maintaining bullish investor sentiment and bolstering current values will require a strong earnings season.
Global Economic Trends: The changing global interest rates, inflation, and geopolitical happenings will keep affecting capital flows.
Policy and Regulatory Environment: Local fiscal policy, tax regime changes, and regulatory policies will remain key to maintaining FII confidence.
Market commentators lament that while short-term liquidity and technicals have driven the rise, the real test on sustainability will be on the backdrop of corporate fundamentals and outside environment for macroeconomic stability. So there might be renewed volatility in case any downside risk event arises, such as geopolitical conditions or hardening stance by the US Federal Reserve on monetary policy.
In summary, the current stock market expansion, which is being driven by FIIs, has bolstered trust in the Indian equity market and demonstrated its ability to withstand global economic crises. However, it is still unclear if such a recovery will be sustainable in the long run. It remains advisable for investors to exercise caution in ensuring that their optimistic hope is balanced with a fundamentally grounded, neutral assessment of risk. These several key months ahead are going to dictate whether this present surge is the beginning of a long-term bull market or simply a passing phase within an otherwise uncertain economic backdrop.