- FIIs reversed a 7‑month sell‑off, buying ₹5,236 cr on Feb 3 after the trade pact.
- Large‑cap stocks are the first likely beneficiaries; mid‑caps may lag.
- Earnings visibility for FY27‑28 is the new driver of foreign flows.
- A stronger rupee (< 90/USD) could trigger a positive feedback loop for inflows.
- US political volatility remains the wild card that could undo the upside.
You missed the early warning sign that could have saved your portfolio.
After seven straight months of draining more than ₹2.25 lakh cr from Indian cash equities, foreign institutional investors (FIIs) finally pressed the pause button – and flipped it to net buying on February 3, the day the India‑US trade deal was announced. The purchase of ₹5,236 cr may look modest against the backdrop of last year’s outflows, but the real story is the psychological pivot: FIIs stopped selling. In markets where foreign capital is a price‑setting force, the cessation of a sell‑off is often more bullish than a modest buy‑in.
Why FIIs’ Shift After the India‑US Trade Deal Matters for Your Portfolio
The deal eliminated the biggest geopolitical overhang – looming US tariffs – and replaced it with a framework of policy certainty. For foreign investors, certainty translates into predictable cash‑flows, lower currency risk, and a clearer earnings outlook. When the rupee steadies, dollar‑denominated returns improve, making Indian equities a more attractive allocation relative to other emerging markets.
Sector‑by‑Sector Impact: Large‑Cap Winners and At‑Risk Industrials
Analysts agree that the first wave of foreign money will gravitate toward the most liquid, fairly‑valued large‑cap names. Companies in information technology, pharma, and consumer staples are positioned to absorb the early inflows because they combine deep balance sheets with stable margins.
Conversely, auto manufacturers, component makers, and certain consumer‑discretionary segments face headwinds. Elevated metal prices are squeezing margins, while household spending power remains constrained. Expect selective buying – a “nibble” strategy – rather than a flood across the board.
Historical Parallel: Past FII Re‑entries and Market Outcomes
The 2017‑18 “Make in India” push offers a useful analogue. After a series of policy announcements, FIIs shifted from net sellers to net buyers over a three‑month window. The S&P BSE Sensex rallied ~12% in the subsequent 12 months, driven largely by large‑cap re‑rating and a strengthening rupee. The lesson? A policy‑driven sentiment shift can produce a lagged but durable price appreciation, especially when earnings visibility improves.
Technical Signals: What the Buying Patterns Reveal
On the day of the announcement, the cash segment saw a spike of ₹5,236 cr, followed by a tepid ₹30 cr the next day. Volume‑weighted average price (VWAP) analysis shows the purchases clustered around the 200‑day moving average, a classic “support‑break” signal for institutional buyers. If the next two weeks hold a net‑positive flow, the 50‑day moving average could break higher, unlocking a technical upside for momentum‑focused funds.
Investor Playbook: Bull vs. Bear Scenarios
- Bull Case: Rupee breaks below ₹90/USD, earnings growth accelerates in FY27‑28, and US‑India relations stay stable. FIIs increase allocations by 0.5‑1% of market cap, driving the Sensex above 78,000.
- Bear Case: Unexpected US tariff escalation or a political shock (e.g., abrupt policy reversal) triggers capital outflows. Large‑cap rally stalls, rupee slides back above ₹83/USD, and the market re‑enters a consolidation phase.
For the pragmatic investor, the sweet spot lies in building exposure to high‑quality large‑caps now, while keeping a modest tactical reserve for opportunistic entry into mid‑caps should the FII tide turn stronger in the next quarter.