Share Market Image Credit source: Symbolic photo
After continuous selling for almost seven months, foreign investors have finally shown signs of returning to the Indian stock market. The biggest reason for this change is believed to be the new trade agreement between India and America. After this deal, not only has the stock market environment improved, but the rupee has also got support. However, the question now is whether this comeback will be permanent or just a temporary relief?
In the last seven months, foreign institutional investors i.e. FIIs had sold Indian shares worth about Rs 2.25 lakh crore in the cash segment. Due to continuous selling, there was pressure on the market and investor sentiment also weakened. But in the beginning of February the picture changed a bit.
The very next day after the announcement of the India-US trade agreement, foreign investors made vigorous purchases and invested thousands of crores of rupees in the market in a single day. This indicated that at the moment they are again thinking positively about India. However, the next day their purchases remained very limited, which made it clear that they were not completely convinced yet.
Stopping of selling is also a big sign
Market experts believe that even though the buying by foreign investors may not be very intense yet, the most important thing is that they have stopped heavy selling. This in itself is a big positive sign. According to experts, foreign investors are currently proceeding with caution.
Relief to the market from India-America deal
The trade agreement between India and America has reduced the tariff and policy related fears hovering over the market to a great extent. This has given investors confidence that at present India is not in danger of any major trade shock. Apart from this, a big benefit of this agreement has also been seen in the currency market. There has been stability in the rupee, which is very important for foreign investors. Generally, foreign investors stay for a long time only when they do not fear much currency fluctuations.
Earnings of companies will decide the way forward
In the coming times, the real test for foreign investors will be the earnings of Indian companies. Experts believe that if the profits of companies show strength, then foreign investors can remain in the market for a long time. It is estimated that the picture of improvement in earnings will start becoming clear from the fourth quarter and it may become stronger by the financial year 2027. The strong financial position of the government, support to domestic manufacturing and large scale government capital expenditure are also creating a positive basis for the market.
Strengthening of rupee can give impetus to foreign investment
The movement of the Indian rupee also plays a big role in the decision of foreign investment. When the rupee strengthens, foreign investors get better returns against the dollar. If the rupee strengthens further in the coming months, it may attract further foreign investment. Especially when exporters start bringing their dollars kept abroad back to India. This can create a positive cycle, which will further strengthen the market.
Trump factor will remain the biggest risk
However, the picture is not completely clear. The policies of US President Donald Trump and his sudden changing stance are still considered a big risk. If America again adopts aggressive trade policy or gives rise to any new dispute, the confidence of foreign investors may waver once again. That is, at present the return of foreign investors has started, but their long-term survival will depend on these three, earning, rupees and global politics.
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