FIIs return to Dalal Street, pump Rs 38,971 crore into Indian equities amid AI sell-off

Foreign portfolio investors (FPIs) have invested Rs 38,971 crore in Indian equities this week, as a sharp fall in global technology stocks flipped investment trends. Concerns over heavy spending on artificial intelligence (AI) and a possible slowdown in data centre investments have triggered selling across global markets, making Dalal Street more attractive to foreign investors. Overseas investors had earlier been selling Indian shares as money moved towards AI-focused markets, according to NSDL. However, the recent fall in AI stocks has led to a change in strategy, with foreign investors returning to Indian equities.

Global markets came under pressure on Thursday, with losses continuing on Friday. In the US, a sharp fall in technology stocks wiped out gains made during Wall Street's post-election rally. All three major US indices recorded their biggest single-day losses since April 2025 on Thursday. This erased the gains from Wednesday, when the Dow jumped more than 1,500 points, marking its best trading session since April 2025. The sell-off was driven by concerns that spending on AI-related data centres could slow down. These concerns also affected other AI-focused markets, including South Korea, Taiwan and Japan.

V K Vijayakumar, chief investment strategist at Geojit Investments Limited, said that decline in AI stocks in the US and other markets had played a key role in bringing foreign investors back to India. He said concerns over data centre spending in the US were behind the sell-off. The Democrats, who won both chambers of Congress, are opposed to indiscriminate spending on data centres and are expected to demand safeguards for AI. As investors reassess their investments in AI-focused markets, India has become a more attractive option. "The AI sell-off has made India, which is widely regarded as a non-AI trade, attractive for FPIs. Furthermore, the impressive earnings growth in India and the attractive large-cap valuations made India a favoured investment destination," Vijayakumar said.

The return of foreign investors also brought a change in the buying and selling patterns of institutional investors. While FPIs turned aggressive buyers, domestic institutional investors (DIIs) remained sellers on all trading days last week. Vijayakumar said the sudden change in investment trends and a short squeeze helped push the market higher. "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% in a week," he said. He added that foreign investors were buying heavily in some of the biggest companies listed on the market, particularly in the financial, IT, automobile and telecom sectors. "FIIs have turned major buyers in index heavy weights in financials, IT, automobiles and telecom," he said. The Nifty rose 7.58% over the week as foreign investors increased their purchases. India's earnings growth and large-cap valuations have also added to its appeal at a time when global investors are reconsidering their exposure to AI-related investments.