Will trade deal with US bring back FIIs to India?
What's the story
The recent India-US trade deal has been welcomed by the Indian stock market, with investors seeing it as a potential driver for foreign investor inflows. The agreement is expected to positively impact equities and export-oriented sectors. Axis Securities termed the trade deal as "structurally positive for India's medium-term growth and external stability," predicting that improved market access and tariff certainty will boost exports, manufacturing investment, and foreign direct investment (FDI) inflows.
Investor behavior
FIIs have been net sellers in 2025
Foreign Institutional Investors (FIIs) have been net sellers in 2025, a trend that continued into the current calendar year. According to NSDL data, FIIs have withdrawn ₹106,606 crore from equity markets since August 2025 (including ₹35,962 crore in January). This was after the US imposed an additional 25% tariff on India, doubling the effective tariff rate to 50%. The Indian stock market has remained range-bound over the past year due to the FII selling and other factors like earnings slowdown.
Market stability
Domestic institutional investors remain strong buyers
Domestic institutional investors (DIIs) have remained strong buyers during heavy FII selling in 2025. An MOSL report revealed that DII equity inflows hit a record $90.1 billion in 2025, up from $62.9 billion in 2024. "With just one year of outflows since CY15, DIIs have invested $255.8 billion cumulatively over the last 10 years," the brokerage said.
Future prospects
Valuations and fundamentals expected to attract FIIs back to India
Market experts expect improving valuations and strong fundamentals to attract FIIs back to Indian markets in the near term. Divam Sharma, the Co-Founder and Fund Manager at Green Portfolio PMS, said a large chunk of US FII capital will likely shift here, viewing India as the premier strategic play among the emerging markets. Seema Srivastava from SMC Global Securities also believes that the new deal signals policy stability, growth revival, and improved sectoral prospects, factors that enhance investor confidence.
Risk mitigation
Deal reduces geopolitical and trade risks
Srivastava added that the agreement reduces geopolitical and trade risks, a key determinant in the FPI allocation decisions. Despite execution risks and international demand conditions being important variables, the deal is widely seen as a structural positive that will re-anchor FPIs to India's growth story. MOSL also said with the fog of uncertainty now lifted, multiple positives will accrue including reversal of FII outflows.