FII buying returns, but conviction still elusive on Dalal Street

A tentative calm has returned to Dalal Street, though few would mistake it for conviction. After three consecutive months of relentless selling, Foreign Institutional Investors (FIIs) turned net buyers in February, infusing nearly $1.7 billion into Indian equities.

The immediate trigger appears to be greater clarity on the India–US trade arrangement, which has eased policy uncertainty and steadied risk sentiment. Yet, as analysts at Stoxkart astutely observe, this looks less like a structural pivot and more like a cautious reallocation.

The context matters. For much of the year, foreign flows have remained negative, reflecting global headwinds rather than domestic frailty. Elevated US bond yields, a resilient dollar, and ambiguity around the trajectory of American interest rates have kept emerging markets on a tight leash. Against that backdrop, the recent inflows into India may simply represent tactical positioning rather than a decisive endorsement of valuations or earnings prospects.

Indeed, much of the optimism surrounding India–US trade clarity appears already priced in. Markets had rallied in anticipation of tariff rationalisation and reduced downside risks. What lies ahead will depend less on bilateral headlines and more on the broader macro canvas: the Federal Reserve’s policy path, US nonfarm payroll trends, currency stability, and the durability of corporate earnings growth.

In that sense, foreign participation is likely to remain selective and, at times, volatile. The fragility of sentiment was on display this week. Benchmark indices corrected sharply, with the Nifty 50 slipping nearly 0.9 per cent to 25,471 and the Sensex declining over 1 per cent to 82,626. Market breadth was uninspiring, revealing limited participation beneath the headline numbers.

The principal drag was the IT sector, which tumbled over 8 per cent, its steepest weekly fall in months. As VSRK Capital notes, the weakness appears sentiment-driven rather than structural.

Global demand concerns, cautious management commentary, and the looming question of how generative and agentic artificial intelligence may reshape outsourcing economics have prompted investors to book profits. Heavyweights such as Tata Consultancy Services, Infosys and Wipro bore the brunt of selling.

Compounding the unease was stronger-than-expected US jobs data, which tempered hopes of imminent rate cuts and curbed global risk appetite. From a technical standpoint, analysts at Master Capital Services Ltd point out that the Nifty has slipped below its 21-, 50- and 100-day exponential moving averages, signalling near-term weakness.

The breach of the 25,500 support zone raises the probability of further downside toward 25,300 or even 25,050, unless the index can reclaim the 25,700 resistance with authority.Interestingly, domestic institutional investors (DIIs) have played a stabilising role, offsetting foreign outflows with steady purchases.

Meanwhile, the Bank Nifty has displayed relative resilience, hovering near record highs and sustaining above key moving averages, supported by strength in PSU banks. A cautious buy-on-dips approach appears more tenable there than in the broader market.

For investors, the lesson is one of composure. Volatility at this juncture reflects recalibration rather than collapse. Systematic Investment Plans and staggered allocations offer a disciplined way to navigate choppiness without succumbing to fear or exuberance.

The foreign selling streak may have paused, but its definitive end will hinge not on sentiment alone, but on the interplay of global liquidity, earnings momentum, and valuation comfort. In markets, as in diplomacy, clarity can soothe—but conviction requires more enduring proof.