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Foreign Portfolio Inflows Surge in India as Rupee Regains Traction

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  Published in Stocks and Investing on Tuesday, December 23rd 2025 at 6:28 GMT by moneycontrol.com
      Locale: INDIA

Foreign Portfolio Inflows Surge in India as the Rupee Regains Traction

Over the past two months, India has become a magnet for foreign investors, who have poured fresh capital into the country’s equity markets. The rupee, which had been under pressure in the earlier part of the year, has also shown signs of recovery, providing a favorable backdrop for the stock market’s rally. Below is a comprehensive overview of the developments that have shaped this bullish trend, the key drivers behind the foreign inflows, and what the data suggests about the future trajectory of both the currency and the market.

1. Foreign Portfolio Investment (FPI) – A Record‑High Outflow

According to the Reserve Bank of India (RBI), foreign portfolio investors purchased ₹1.07 trillion (about $12.8 billion) worth of Indian securities in the period spanning the first two months of 2025. This figure represents a 25‑percent increase over the same period in the previous year and stands as one of the largest two‑month blocks of FPI inflows in the country’s history.

The bulk of these purchases were directed toward large‑cap blue‑chip companies that dominate the Nifty 50 and Sensex indices. Firms such as Reliance Industries, Tata Consultancy Services, and HDFC Bank were among the top receivers of foreign capital. In addition to equity, a sizeable share of the inflows also came in the form of bonds and government securities, indicating a diversified strategy by global investors.

2. The Rupee’s Comeback – A Story of Stabilisation

The rupee’s journey over the same period has been equally noteworthy. After a period of weakness—dropping from a 50‑day high of ₹82.30 per USD to a trough near ₹84.20—the currency has rebounded, trading around ₹82.90 as of mid‑December. The RBI’s monetary stance has played a pivotal role here. The central bank’s “forward guidance” and its decision to keep interest rates steady at the 7.25 % policy repo rate have signaled a stable monetary environment, which, coupled with improving macro fundamentals, has boosted investor confidence.

3. Market Performance – Nifty 50 & Sensex Rally

The Nifty 50 index climbed 7.2 % year‑to‑date, while the Sensex surged by 7.8 %. The rally was led by the technology, financial services, and energy sectors—sectors that have consistently attracted foreign capital due to their robust earnings growth and global exposure. The BSE Sensex and NSE Nifty 50 have, in recent weeks, breached 15,000 and 18,000 points respectively, signalling a bullish sentiment among domestic and international investors alike.

For those interested in the daily performance metrics, the BSE Sensex data can be found on the Bombay Stock Exchange’s official website, while the NSE Nifty 50 statistics are available through the National Stock Exchange portal.

4. Macro‑Economic Catalysts

Several macro‑economic factors have coalesced to create a conducive environment for foreign inflows:

• Economic Growth: India’s GDP growth rate of 6.8 % in the second quarter, as reported by the Ministry of Statistics and Programme Implementation, exceeds market expectations and has been a key attractor for foreign capital.

• Inflation: The Consumer Price Index (CPI) inflation rate has cooled from 6.3 % in November to 5.8 % in December, easing concerns about potential interest‑rate hikes.

• Corporate Earnings: The second‑quarter earnings season has been remarkably strong, with major conglomerates reporting record profits, which has bolstered investor sentiment.

• Global Risk Appetite: The easing of geopolitical tensions in the Middle East and a more accommodative stance from the U.S. Federal Reserve have lifted risk aversion, leading to a spillover effect on emerging‑market equities like India’s.

5. RBI’s Policy Framework – Forward Guidance and Liquidity Management

The RBI’s recent policy statements have been instrumental in setting market expectations. In a recent press release, the RBI emphasized its willingness to keep the policy repo rate unchanged, while also signalling readiness to provide additional liquidity if required. The central bank’s “forward guidance” has reduced uncertainty about future monetary policy, making the Indian market more attractive to risk‑tolerant investors.

For those looking to delve deeper into the RBI’s policy documents, the Reserve Bank of India’s website provides a comprehensive archive of press releases, monetary policy statements, and monthly reports.

6. Sector‑Specific Highlights

• Technology: Firms like Infosys and Wipro posted higher-than‑expected revenue growth, prompting a surge in their share prices and attracting foreign capital.

• Financial Services: The banking sector’s improved non‑performing asset ratios and rising net interest margins have turned the sector into a favourite for foreign investors.

• Energy & Materials: Rising commodity prices and domestic demand have lifted the prospects of companies such as Oil and Natural Gas Corporation (ONGC) and JSW Steel.

7. Risks & Caveats

While the current trajectory is positive, several risks loom:

• Currency Volatility: Any sudden devaluation of the rupee could erode foreign investors’ returns and dampen inflows.

• Domestic Policy Changes: Potential shifts in corporate tax policy or foreign investment restrictions could create uncertainty.

• Global Macro Events: Geopolitical developments or a shift in global risk appetite could reverse the bullish trend.

8. Outlook – What Lies Ahead?

Given the current data, many market analysts predict that foreign inflows will continue to grow as long as the rupee remains resilient and the RBI’s policy stance stays accommodative. The Nifty 50 and Sensex are likely to stay within a bullish bias, with potential upside targets of 19,000 for the Nifty and 16,500 for the Sensex, assuming a continued recovery in the rupee and sustained earnings growth.

However, investors are advised to stay vigilant, keeping an eye on macro‑economic releases, RBI policy statements, and global market dynamics.

In Summary

The confluence of record foreign portfolio inflows, a recovering rupee, and a robust macro‑economic backdrop has driven India’s equity markets into a sustained rally over the last two months. With the RBI signalling continued accommodative policy, and with strong earnings and growth prospects across key sectors, foreign investors appear optimistic about the medium‑term outlook for Indian equities. While risks persist, the data points to a potentially bright future for both the rupee and the market, provided the underlying fundamentals remain strong.