FIIs Turn Cautious, Reduce Selling in Indian Markets Ahead of Diwali

Foreign institutional investors (FIIs) have substantially curtailed their selling in the Indian market and even turned net buyers on certain days, signaling renewed confidence in domestic equities, analysts said on Sunday.

Data till October 17 shows that FII net selling has dropped sharply to Rs 4,114 crore, a significant reduction compared to previous months.

Dr. VK Vijayakumar, Chief Investment Strategist at Geojit Investments, attributed the change to a narrowing valuation gap between India and other global markets. “India’s underperformance over the past year has opened up prospects for better performance going forward,” he said, adding that earnings growth is expected to respond positively to ongoing fiscal and monetary reforms.

High-frequency data also point to strong festive season sales in automobiles and consumer durables, further supporting market sentiment. Analysts believe that with valuations aligning more closely with global peers and improving earnings prospects in FY27, FII selling is likely to slow down further in the coming months.

A sustained feature of FII activity over the past two years has been robust investment in the primary market, particularly in IPOs and preferential allotments. Analysts say this trend is likely to continue, given the relatively attractive valuations of newly listed companies.

Ajit Mishra, SVP of Research at Religare Broking Ltd, noted that the market enters the new week with a constructive medium-term outlook supported by cooling inflation, strong domestic macro fundamentals, and robust earnings momentum.

Investors will also eye the one-hour Diwali muhurat trading session on October 21, marking the start of Samvat 2082, for sentiment cues and festive market enthusiasm, with expectations of strong retail and institutional participation.