Foreign Investors Defy Tensions, Pour ₹32,500 Crore into Indian Markets Post-Pahalgam Attack

Despite escalating cross-border tensions between India and Pakistan following the tragic Pahalgam terror attack, foreign portfolio investors (FPIs) have demonstrated unwavering confidence in Indian equities. In a significant show of faith, global investors have bought Indian stocks worth nearly ₹32,500 crore over the past eight trading sessions, marking one of the strongest consecutive buying streaks since 2024, according to National Stock Exchange (NSE) data.

This robust inflow stands in stark contrast to the slight caution shown by domestic institutional investors (DIIs), who have turned defensive amid geopolitical uncertainties. Nevertheless, the resilience of foreign investors underscores the attractiveness of India’s economic fundamentals, long-term growth story, and relative macroeconomic stability even in times of crisis.

Timeline of Events: Pahalgam Attack to FPI Buying Spree

The sequence of events that triggered geopolitical unease started with the Pahalgam terror attack on April 22, 2025. In the immediate aftermath, equity benchmarks displayed notable resilience:

• April 23, 2025:
  Despite initial fears, the Nifty 50 and Sensex ended the day over 0.6% higher, surprising many market observers. Notably, FPIs purchased Indian equities worth ₹3,332.93 crore even as diplomatic exchanges between India and Pakistan intensified.

• April 24, 2025:
  As political rhetoric heated up and the possibility of retaliatory measures loomed, Indian equity markets corrected sharply, with major indices falling by over 1%. Yet FPIs turned net buyers to the tune of ₹8,250.5 crore—their second-largest single-day purchase of the year.

• April 25, 2025:
  Amid continued volatility, foreign funds injected another ₹2,952.3 crore into the market. Combined with the previous day’s flows, FPIs invested ₹11,202.8 crore in just two sessions.

Across eight trading sessions, FPIs poured ₹32,500 crore into Indian equities, helping cushion the market against broader selloffs and significantly reducing their net outflows for April.

A Reversal in Sentiment: From Heavy Outflows to Robust Inflows

Until mid-April, FPIs had been aggressive net sellers in India, pulling out over ₹34,600 crore from domestic stocks amid concerns over elevated U.S. interest rates, geopolitical tensions in the Middle East, and a correction in global equities. However, the recent buying spree has changed the narrative.

As of April 26, 2025:

• Net FPI outflows for April have narrowed sharply to just ₹2,157.5 crore.

• A large part of this reversal is attributed to growing confidence that Indian corporate earnings will remain resilient and that the Indian economy will outperform global peers.

The sharp pivot also suggests that many global funds were underweight on India and are now scrambling to rebuild their positions, unwilling to miss out on potential gains.

What’s Driving the FPI Confidence?

Several factors appear to be at play behind the foreign buying spree:

1. India’s Economic Fundamentals Remain Robust

India’s GDP growth forecast for FY25 stands at 6.8% according to IMF estimates, making it one of the fastest-growing major economies globally. Inflation is largely under control, the fiscal deficit is narrowing, and reforms in sectors like manufacturing, renewable energy, and infrastructure are gaining traction.

Moreover, corporate earnings for Q4 FY25 have largely met or exceeded expectations so far, adding to investor confidence.

2. Attractive Valuations After Correction

The dip in Indian markets post-Pahalgam attack provided attractive entry points for long-term investors. The Nifty’s 12-month forward price-to-earnings (P/E) ratio dropped to around 18.2x—more reasonable compared to previous highs, especially when weighed against India’s superior earnings growth outlook.

3. Global Diversification and China’s Economic Slowdown

With persistent worries over China’s growth slowdown and real estate sector issues, many global investors are looking to diversify into other emerging markets. India, with its large consumer base, young demographics, and political stability, stands out as an attractive alternative.

4. Expectation of Favorable Policy Environment

The ruling government’s expected pro-growth and pro-business stance after the upcoming elections is another factor driving optimism. Investors are betting that reforms around labor laws, land acquisition, and taxation will continue, boosting India’s long-term growth trajectory.

Domestic Institutions Turn Slightly Cautious

While FPIs have been on a buying spree, domestic institutional investors (DIIs)—including mutual funds and insurance companies—have turned cautious.

DIIs, who had been strong buyers in February and March, appear to be booking profits and reducing exposure slightly in select sectors such as banking, real estate, and metals, which could be more sensitive to geopolitical shocks.

Market participants suggest that domestic funds are adopting a wait-and-watch approach, preferring to gauge the geopolitical developments before deploying fresh capital aggressively.

Sectoral Trends: Where the Money is Flowing

FPI inflows over the past week have not been uniform across sectors. Some clear preferences have emerged:

• Technology:
  Continued strong earnings from major IT firms and stable global demand have made technology stocks attractive.

• Financials:
  Select private sector banks and non-banking financial companies (NBFCs) have seen strong inflows, particularly those with limited rural exposure.

• FMCG and Pharma:
  Defensive sectors like fast-moving consumer goods and pharmaceuticals have attracted buying due to their stable cash flows amid uncertainty.

• Infrastructure and Capital Goods:
  Stocks aligned with government-led capex themes continue to see buying interest.

In contrast, sectors like metals, oil & gas, and mid-cap stocks have seen relatively muted foreign interest, reflecting risk aversion amid geopolitical tensions.

Key Numbers: A Snapshot

Outlook: What Lies Ahead for Indian Markets?

Despite heightened diplomatic tensions, analysts remain broadly optimistic about Indian equities, particularly in the medium to long term.

Short-term View:

• Markets are likely to remain volatile in the near term, sensitive to headlines related to India-Pakistan relations.

• Defensive sectors are expected to outperform until greater clarity emerges.

Medium-term View:

• If geopolitical tensions de-escalate, Indian equities could resume their uptrend, supported by strong fundamentals, robust earnings, and favorable liquidity conditions.

Risks to Watch:

• Escalation of cross-border tensions into open conflict could lead to sharp market corrections.

• External risks, including U.S. monetary policy decisions, oil price volatility, and global risk-off sentiment, remain pertinent.

Conclusion: Faith in India’s Growth Story Prevails

The foreign investor response to the Pahalgam terror attack and ensuing tensions has been telling. Rather than fleeing Indian markets, FPIs have doubled down on their faith in India’s resilience, future growth potential, and structural economic strengths.

While volatility may persist in the short term, the underlying message from foreign fund flows is clear: India’s equity story remains compelling on the global stage. In an increasingly uncertain world, the Indian stock market continues to be seen as an island of relative stability and opportunity.

As investors brace for more news on geopolitical fronts, one thing is certain — global money is betting that India’s long-term story remains intact, if not stronger than ever.

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