$5 billion in 5 days! Why FIIs are suddenly shopping Indian stocks non-stop this Diwali

Foreign institutional investors (FIIs) are staging a dramatic turnaround in Indian equities, pouring roughly $5 billion into the market in just five trading sessions as strong earnings, softer oil prices and the unwinding of the global AI trade revive India’s appeal just ahead of the Diwali festival.

The buying spree marks a sharp reversal after a record foreign selloff had pushed overseas ownership of Indian stocks to historic lows. FIIs bought nearly Rs 15,000 crore on Thursday alone, their biggest single-day purchase in more than a year, according to provisional exchange data.

The surge in foreign flows comes as investors reassess India’s relative attractiveness against a backdrop of global market turmoil. The Sensex rallied 2.6% on Thursday and was trading about 0.8% higher on Friday morning, even as Asian markets were battered by a technology-led selloff.


Japan’s Nikkei slumped nearly 7%, while South Korea’s Kospi fell more than 9% to slip below the 5,000 level. Taiwan’s benchmark also dropped sharply. The Nasdaq sank 5.5% overnight, wiping out about $3 trillion from S&P 500 companies, as investors questioned the sustainability of massive artificial-intelligence investments.

For India, however, the global AI rout could become a source of capital rather than a threat. “Regional equity plays that have been relatively less exposed to the AI-play this year appear to be benefiting in the initial phase of re-allocation,” said Radhika Rao, senior economist at DBS.

Also Read | Bloodbath in Nasdaq, Kospi and Nikkei but why Nifty is an oasis of peace amid global rout

Indian equities have gained momentum this week, supported by a sharp recovery in foreign portfolio flows, she said. Net inflows have reached $4 billion in the past 10 sessions, while a stable rupee has helped Indian indices deliver gains in dollar terms.

India has been described as an “anti-AI” trade because it was left out of much of the global AI rally and has limited direct exposure to the AI supply chain. Any unwinding of crowded AI-linked positions could therefore encourage investors to rotate into other emerging markets, including India and Brazil.

“The blood bath in the US markets will impact most other markets today, but India is likely to be the least impacted,” said Dr. V K Vijayakumar, chief investment strategist at Geojit Investments Ltd.

“The big rout of 5.6% in Nasdaq was triggered on concerns of big slowdown in data centre spending since the Democrats are opposed to massive data centre investment,” Vijayakumar said. “This tech rout, particularly the sharp deceleration in AI trade will turn out to be beneficial for India.”

The selloff has been concentrated in companies most directly linked to the AI boom. Samsung Electronics and SK Hynix fell nearly 10% and 12%, respectively, while Japan’s Kioxia plunged 14% and Taiwan Semiconductor Manufacturing Co. dropped as much as 8.5%. SoftBank Group, a major AI investor, declined 11%.

Nvidia, the face of the AI boom, fell 9.3% and was the biggest drag on the S&P 500. The stock is now down 2.6% for the year after annual gains of roughly 39%, 171% and 239% in the previous three years.

The market anxiety centres on whether a slowdown in data-centre construction could reduce demand for AI chips, electricity and other products and services that have been absorbed by the AI investment cycle. Investors are also concerned that smaller companies may struggle to raise funds amid higher interest rates and tighter financial conditions.

Also Read | Rs 10 lakh to invest this Diwali? Why experts favour largecaps and debt for a 5-year horizon

India’s appeal, meanwhile, is being reinforced by the improving earnings outlook.

Global brokerage Nomura said India’s relative attractiveness could improve as corporate earnings deliver, valuations remain below post-pandemic averages and global headwinds ease. Lower crude prices could further reduce pressure on inflation, the import bill and the current account, particularly after high oil prices and geopolitical tensions contributed to the earlier wave of foreign selling.

Nomura also said the bargaining positions of the US and Iran could change after the US midterm elections, with Iran becoming more willing to negotiate. The Federal Reserve could pause rate hikes if hopes of peace push oil prices lower or if credit concerns intensify, it said.

Kotak Institutional Equities said strong second-quarter results should give investors greater confidence in the fiscal 2027–28 earnings outlook and valuations.

Net profits of the Nifty 50 companies that had reported so far rose 19% year-on-year, 4% ahead of Kotak’s estimates. Net profits of the brokerage’s coverage universe grew 18%, 3% ahead of expectations. Similar trends were visible in EBITDA, as well as in earnings adjusted for the oil, gas and consumable fuels sector.

Vijayakumar said the latest rally had fundamental support from better-than-expected earnings growth and was being led by large-cap stocks, which had become relatively attractive after a period of underperformance.

“Despite selling and profit booking by DIIs the market is likely to remain resilient since FII buying will continue in the changed global market construct,” he said.

The divergence between largecaps and smaller stocks underscores the nature of the foreign-led rotation. While the Sensex rallied 2.6% on Thursday, the Smallcap 100 index rose only 0.67%.

“It is evident where money is going,” Vijayakumar said. “For financials, tech and auto stocks there is more upside.”

Shahzad Madon, managing director and chief executive officer of TCG AMC, said several of the major pressures on Indian equities, including high energy prices, the AI trade, currency weakness and FII outflows, were now easing.

“Now that pressure is easing, the worst appears to be behind us from a macro perspective,” Madon said.

He added that India’s macroeconomic conditions had held up well despite a difficult global environment, while corporate results had remained strong over the past three quarters.

“For investors, this is an opportunity to look beyond near-term uncertainties and focus on the underlying fundamentals as valuations are far more reasonable post two years of market underperformance, while earnings have continued to compound,” Madon said. “We believe that the risk-reward is increasingly favourable.”

Uday Kotak, founder of Kotak Mahindra Bank, has also said India could benefit if the global AI investment boom unwinds and investors search for markets offering more attractive valuations.

“The kind of leverage which global companies are taking to fund their AI aspiration is also leading to significant overvaluation in many cases,” Kotak said in a virtual address ahead of India’s Diwali festival. “And India, as it works down the path of building its own AI capability, will also benefit for reverse flow, should it happen.”

Kotak said the AI trade had made India look increasingly like an “anti-AI” market. While he believes artificial intelligence is changing the world, he warned that the leverage used by global companies to fund their AI ambitions had contributed to significant overvaluation in some cases.

For now, the combination of strong earnings, relatively reasonable valuations, softer oil prices, a stable rupee and renewed foreign buying is giving Indian equities an important advantage. As the global AI trade comes under pressure, the money that once chased the most crowded technology bets may be finding a new destination in Indian stocks this Diwali.

(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times)