India-US Trade Deal Boosts Market Sentiment: Will FIIs Return to Indian Stock Market?
The Indian stock market cheered the long-awaited India–US trade deal on Tuesday, February 3, with investors viewing the agreement as a key catalyst for equities, export-oriented sectors, and a possible revival in foreign investor inflows.
After months of persistent selling pressure from foreign institutional investors (FIIs), the easing of trade-related uncertainty is being seen as a major positive for India’s medium-term growth outlook.
Trade Deal Seen as Structural Positive for Growth
According to Axis Securities, the agreement is structurally positive for India’s external stability and economic growth.
“Improved market access and tariff certainty are likely to boost exports, support manufacturing investment, and strengthen inflows of foreign direct investment (FDI),” the brokerage said.
Market participants believe the deal enhances policy visibility and reduces geopolitical risks, two key factors influencing foreign portfolio investment decisions.
Markets Open Strong on Trade Deal Optimism
Indian equity benchmarks opened sharply higher following the announcement. The Nifty 50 began the session at 26,308 and touched an intraday high of 26,341 within minutes of the opening bell. Meanwhile, the BSE Sensex opened at 85,323 and climbed to an early peak of 85,871.
The strong opening reflected renewed optimism that the trade agreement could support earnings visibility and capital flows into Indian equities.
FIIs Remain Net Sellers, but Selling Pressure Eases
Despite the positive sentiment, FIIs have remained net sellers so far in 2025. Data from NSDL shows that foreign investors have withdrawn ₹106,606 crore from Indian equities since August 2025, including ₹35,962 crore in January alone.
For the full year, FII outflows stood at a record ₹166,286 crore, driven by concerns over global interest rates, earnings slowdown, and strained Indo-US trade relations.
However, the intensity of selling has moderated. In the first two trading sessions of February, FIIs turned marginal net buyers, purchasing equities worth ₹1,906 crore.
India Underperformed Peers Amid Trade Uncertainty
Motilal Oswal Financial Services (MOSL) noted that strained Indo-US trade relations since April 2024 had weighed heavily on foreign investor sentiment.
India’s equity markets have underperformed global peers by nearly 40% over the past year, as concerns over tariffs and limited negotiating leverage clouded the outlook. Weak earnings growth and sustained FII selling kept indices range-bound for much of the last 12 months.
Domestic Investors Cushion Market Volatility
In contrast, domestic institutional investors (DIIs) have played a stabilising role. According to MOSL, DII equity inflows hit a record $90.1 billion in calendar year 2025, compared with $62.9 billion in 2024.
Over the past decade, DIIs have cumulatively invested $255.8 billion in Indian equities, acting as consistent counter-cyclical buyers during periods of foreign selling.
Can the Trade Deal Trigger Fresh FII Inflows?
Market experts believe that improving valuations, strong macro fundamentals, and reduced trade uncertainty could attract FIIs back to Indian markets in the near term.
Divam Sharma, Co-Founder and Fund Manager at Green Portfolio PMS, said India could emerge as a preferred destination among emerging markets as global capital reallocates.
Seema Srivastava, Senior Equity Research Analyst at SMC Global Securities, highlighted that the agreement signals policy stability and growth revival.
“Export-oriented sectors may see valuation re-rating, while improved currency stability could also support debt inflows. Overall, the deal reduces key risks that influence foreign portfolio allocation,” she said.
MOSL added that with the “fog of uncertainty now lifted,” multiple positives are likely to accrue, including a potential reversal of FII outflows.
Large-Caps Likely to Benefit Most
Dr. VK Vijayakumar, Chief Investment Strategist at Geojit Investment, expects fairly valued large-cap stocks to be the biggest beneficiaries if FII buying resumes.
Banking leaders, non-banking financial companies, and select blue-chip stocks in telecom, capital goods, and IT are expected to attract renewed foreign interest, even as the rally remains broad-based across market capitalisations.
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