Foreign portfolio investors have returned to Indian equity markets in a big way, investing Rs 38,971 crore in a single week, according to data from the National Securities Depository Limited, as a sharp sell-off in global technology stocks turns attention back to India's earnings growth and large-cap valuations.
The renewed foreign inflows come amid a dramatic reversal in global markets. Concerns over the sustainability of artificial intelligence-related investments and a possible slowdown in data centre spending have triggered heavy selling in technology stocks around the world, and India, widely regarded as a non-AI trade, has emerged as one of the main beneficiaries of the shift.
Foreign investors had earlier been selling Indian equities as global money moved towards AI-focused markets. The correction in global AI stocks has now changed that calculation. With valuations in the AI trade under pressure, overseas investors are reassessing where their money can earn the best returns, and Indian equities, backed by steady earnings growth, have become attractive once again.
Global stock markets witnessed heavy selling on Thursday, with the downward trend continuing on Friday. A sharp sell-off in United States technology stocks wiped out Wall Street's post-election rally, as concerns over a possible slowdown in AI-related data centre investments triggered losses across global markets. All three major US indices recorded their biggest single-day losses since April 2025 on Thursday, and the S&P 500 posted its biggest weekly drop since 2025.
The sell-off was not confined to the United States. AI-focused markets in South Korea, Taiwan and Japan also came under pressure as investors questioned the pace and financial sustainability of the enormous spending on AI infrastructure.
The worry is straightforward: technology companies have committed hundreds of billions of dollars to building data centres and buying the chips that power artificial intelligence, and investors are now asking whether those investments will generate returns quickly enough to justify their cost.
V K Vijayakumar, Chief Investment Strategist at Geojit Investments Limited, said last week witnessed a sudden and complete reversal in institutional investment trends in India. Foreign portfolio investors turned aggressive buyers, while domestic institutional investors remained sellers on all trading days of the week. "Last week the market witnessed a sudden and complete role reversal from institutions. FPIs turned aggressive buyers, and DIIs turned sellers on all days. The aggressive buying by the FPIs and the consequent short squeeze triggered a big rally in the market, pushing up the Nifty by 7.58 per cent in a week," he said.
The Nifty's gain of 7.58 per cent in a single week is a remarkable move for India's benchmark index, and it underlines how powerful the shift in foreign flows has been. A short squeeze, in which investors who had bet against the market are forced to buy back shares, amplified the rally as foreign buying pushed prices higher and higher.
Vijayakumar attributed the sudden change in foreign investment strategy directly to the AI sell-off in the United States and other AI-focused markets, including South Korea, Taiwan and Japan. He said the sell-off was driven by concerns over data centre spending in the United States, and that the correction had made India, which is widely regarded as a non-AI trade, attractive to foreign investors.
Foreign investors have turned major buyers in index heavyweight stocks across financials, information technology, automobiles and telecom, according to the data. The concentration of buying in large, liquid names is typical of foreign portfolio flows, which tend to favour companies with strong earnings visibility and the capacity to absorb large investments without distorting prices.
The return of foreign investors comes at a time when global investors are reassessing the pace and financial sustainability of AI infrastructure investments. For much of the past two years, the AI trade dominated global markets, with money pouring into the companies building and supplying the technology. India, which has relatively little exposure to the AI hardware cycle, was seen as missing out.
Now the same characteristic is working in its favour: Indian equities are being bought precisely because they are not tied to the fortunes of the AI trade.
The shift also reflects a broader reassessment of valuations. Indian markets had been seen as expensive by many foreign investors, who sold through much of the period when global money was chasing AI stocks. The correction in those stocks has narrowed the valuation gap, and India's earnings growth now looks more attractive by comparison.
The combination of steady domestic demand, a large and growing economy, and companies with improving profitability has given foreign investors reason to return.
Domestic institutional investors, meanwhile, were sellers on all trading days last week, according to Vijayakumar. The role reversal is unusual: domestic institutions have typically been the steady buyers of Indian equities, absorbing foreign selling and supporting the market through periods of outflows. Last week, the pattern flipped, with foreign investors doing the buying and domestic institutions taking profits.
Whether the foreign buying continues will depend on how the global AI sell-off develops. If concerns about data centre spending deepen, more money could rotate towards markets like India that offer growth without direct exposure to the AI cycle. If the technology sell-off proves short-lived, some of the flows could reverse just as quickly.
For now, though, the numbers tell a clear story: in a single week, foreign investors put nearly Rs 39,000 crore into Indian equities, and the Nifty responded with one of its strongest weekly gains in recent memory.
The inflows also come ahead of the Diwali season, traditionally a period of optimism in Indian markets, and as the new Samvat year begins on Dalal Street. Muhurat trading, the special one-hour session held on Diwali, has long been seen as an auspicious start to the trading year, and this year's session comes against a backdrop of strong foreign buying and a rallying market.
For Indian investors, the week's events carry an important lesson about the interconnectedness of global markets. A sell-off in American technology stocks, driven by doubts about AI spending, has translated within days into record foreign buying in Mumbai. The flows that shape Indian markets are increasingly global in origin, and the factors that move them can come from anywhere in the world.
The coming weeks will show whether the foreign return is a lasting shift or a brief rotation. What is clear is that India has, for now, become the destination of choice for global money looking for shelter from the AI storm, and that the country's markets have responded with one of their most powerful rallies of the year.
(Reporting based on Moneycontrol and DD India.)