There is no denying the fact that the Indian benchmark indices, Sensex and Nifty, have been quite volatile of late due to various factors, including geopolitical tensions. Despite this, the stock market has remained resilient mostly because domestic factors are favourable. For instance, the Reserve Bank of India (RBI) reduced the rate cut by 50 bps after the last monetary policy committee (MPC) meeting, boosting liquidity in real estate, banking, and auto sectors. Moreover, GDP and macroeconomic indicators also support market growth. According to experts, FII flows will also return strongly once global uncertainties begin to ease.
They are of the view that the long-term story of India remains intact.
"Cross-border finance flows are increasingly shaped by global geopolitics. The combination of war, shifting alliances, and protectionist rhetoric, particularly from large economies like the US, causes FIIs to experience periods of instability and hesitancy. However, growth eventually attracts money, and India continues to be one of the few sizable economies that can offer both stability and growth. With GDP growth holding steady at 6.5 per cent and India’s global economic influence rising, we expect FII flows to not just return but strengthen once global uncertainties begin to ease. While the short-term noise may be significant, the long-term story of India remains intact and is becoming increasingly compelling, said Anand K. Rathi, co-founder of MIRA Money.
Let’s have a look at key factors working in favour of the Indian stock market.
1. FII Behaviour Amid Global Volatility
In May 2025, FII net outflows totalled Rs 22,000 crore, primarily due to the potential reintroduction of US tariffs under Trump's policy change and growing geopolitical challenges, including turmoil in Eastern Europe and tensions in the Middle East.
Nonetheless, year-to-date figures continue to place India among the top three FII destinations in emerging countries, demonstrating trust in its structural stability.
2. Sector Performance & Capital Rotation
Getting Going:
- Both the necessity for government infrastructure and the rise in credit demand have contributed to the relative strength of capital goods and financials.
- Both a ‘China+1’ sourcing shift and PLI-linked investment cycles are helping domestic manufacturing.
Defensive Plays Hold Ground:
- Despite global risk aversion, FMCG and pharmaceuticals have held steady, serving as a buffer for cautious FIIs.
Underperformers:
- IT and export-oriented segments have seen softer flows due to slowing global demand and currency fluctuations.
3. Why India Still Attracts Capital
- GDP is growing at a stable 6.5 per cent, even as many global peers face slowdown risks.
- Inflation is under control, monetary policy is relatively neutral, and corporate balance sheets are healthier than pre-COVID levels.
- India's growing proportion of the global GDP and MSCI EM indices support passive and active allocation trends.
- Domestic consumption remains robust, cushioning the economy from external shocks.
4. Forward-Looking Outlook
- The risk-reward balance for India gets better as more information about the U.S. elections and geopolitical hotspots becomes available.
- The mix of policy stability, global investor diversification requirements, and macro growth puts India in a strong position for a fresh FII inflow cycle in H2 2025.
