FII $2.44B Inflows Signal Caution Amid Market Revival

Over the years, I have kept a watch on India’s equity markets, not just through data points but also through patterns, shifts in sentiment, and macro narratives. Thus, when the Foreign Institutional Investor (FII) numbers for February came out, I was cautiously optimistic and very curious. Not because FIIs went net buyers, but because the scale and timing of this change provide hints about where global money may move next.

Table of Contents

In this article, I explore factors driving foreign institutional investors back into Indian markets after months of selling, the implications for various sectors, and how global trends and valuations are modulating these flows. I also dive into my thoughts on what the early signs of billion-dollar FII buying might look like for you and me, how it may leave money on the table, but could at least spot some risks to avoid losing against numbers when we get caught in between the hype or simply chasing down statistics.

February 2026: A Remarkable FII Turnaround

FIIs turned into net buyers of Indian equities after a long streak of selling in February. They bought about $2.44 billion, the biggest monthly inflows in 17 months.

This came after a long stretch where foreign investors were overall net sellers, especially notable in the secondary markets. But in February, that trend finally paused, and perhaps even reversed.

Here’s the nuance:

FIIs bought nearly $2.14 billion in secondary markets.
They added $299 million in primary market participation.
This is the highest month of inbound capital since the strong inflows of September 2024.

As someone who tracks these flows closely, I can tell you this isn’t a trivial one‑off. The pattern matters, and the underlying reasons matter even more.

What This Shift Actually Signals

At first glance, you might think, “Great, FIIs are back!” But the real story is deeper. This isn’t just about people putting money to work again. It reflects a reassessment of India’s relative appeal compared to other markets. Here are some of my key takeaways:

1. Valuations Have Corrected, Realistically

Yes, Indian markets had been under pressure. Between mid‑2024 and early 2026, FIIs sold roughly $46 billion in equities. That’s not small change, it’s a statement about relative opportunity cost. But what’s often missed is that after a prolonged correction:

Large caps have priced in the downside more meaningfully.
Mid and small caps have experienced sharper drawdowns.

This means valuation gaps are closing, not just in absolute terms, but relative to peers.

2. Global Money Isn’t Always Rational, It’s Tactical

During 2025, markets like China, Taiwan, and South Korea became much cheaper on earnings multiples, especially in technology and hardware segments. FIIs rotated aggressively toward those opportunities.

At the same time, the global AI narrative favoured certain economies, and India, fairly or unfairly, was seen as an anti‑AI play due to its slower earnings momentum in traditional IT services.

This repositioning meant:

India was underweight in many foreign portfolios.
Capital chased thematic rallies elsewhere.
FIIs sought growth narratives with tighter earnings correlation.

Over time, however, markets cycle, and when valuation discounts become too large, foreign capital tends to reassess. This is where February’s flows become interesting.

3. Is This a Real Trend or Just a Temporary Break?

Here’s where I moderate the excitement. Some analysts are calling this a structural reversal. Others see it more as a pause in selling. I lean toward the latter, with a twist.

Yes, the flows are meaningful.
Yes, they reflect some renewed confidence.

But they’re also modest compared to the scale of the previous outflows. From July 2025 to January 2026, India saw about $20 billion in net selling in secondary markets. Even after recent buying, foreign portfolios remain significantly underweight in India.

So while February’s inflows are important, I interpret them as the early stages of recalibration, not a full bull market signal just yet. Smart investors understand that market reversals typically start with caution before conviction.

Where FIIs Bought, And Where They Didn’t

One of the most interesting features of this shift is which sectors saw inflows, and which ones saw continued selling:

IT Sector Selling Continues

Despite net buying overall, foreign investors sold more than $1.2 billion in IT stocks early in February.

Why?

AI worries, especially around earnings growth sustainability.
Concerns about global demand for traditional services.

This confirms something I’ve written before: the market doesn’t always buy the same narrative that fuels headlines.

Also Read: IT Stocks Drop 3% Amid Surging AI Concerns

Mid & Small Caps Relatively Stronger Performance

While the benchmark indices like the Sensex and Nifty remained relatively flat, the BSE Midcap150 and Smallcap250 indices outperformed, up ~2% and ~1.4%, respectively.

This is telling. It suggests markets aren’t just moving in a one‑direction trend, they’re rotating. Investors willing to look beyond headline large‑cap stocks are finding opportunities where valuations have corrected most significantly.

What This Means for Personal Portfolios

As someone who helps investors situate themselves in a practical context, these are my current views:

The Window of Opportunity Is Widening: Valuations in India today are not the same as they were at the peak of 2024. There’s a growing case for:

Selective re‑entry
Earnings‑anchored positioning
Diversified exposure across market caps

That doesn’t mean betting the farm. But it does mean reconsidering entrenched bearish views.

2. Watch Positioning, Not Just Headlines: Markets don’t turn on data alone; they turn on positioning. Foreign investors have been underweight for a long period. When positioning shifts even slightly, especially ahead of macro improvements, it can foreshadow broader inflows.

Think of this like a slow pendulum swing rather than a sudden rebound.

3. Macro Factors Still Demand Attention: Inflows can quickly reverse if:

Earnings disappoint,
Credit risks rise (especially in financial sectors),
Global liquidity tightens.

So while February’s numbers are hopeful, they’re just one data point in a longer trend.

My Bottom Line

To me, February feels like a moment of reappraisal, not just of Indian markets, but of the global investment narrative.

Foreign investors are beginning to notice that:

India’s valuation is more attractive than it was
Macro risks are better understood
Alternative markets may no longer be as compelling.

But, and this is key, this is early. The next 3–6 months will be critical as we watch: corporate earnings, global liquidity, and sector rotations.

Also Read: 15% Solar Stocks Drop Signals a Bigger Test After US Duties

Disclaimer

This article is for educational and informational purposes only. It does not constitute financial advice or a recommendation to buy or sell any financial product or security. Investing involves risks, including the potential loss of principal. Always consult a qualified financial advisor before making investment decisions.